ICICI Securities' Pankaj Pandey Bullish on Indian Stock Market Outlook
Pankaj Pandey, the head of research at ICICI Securities, has expressed strong optimism about the Indian stock market, projecting robust double-digit returns over the next 12 months. In a detailed interview, he emphasized that India's economic fundamentals are aligning to support a positive equity outlook, with key factors including lower inflation, reduced bond yields, and accelerating growth.
Nifty and Sensex Targets Remain Firm
Pandey confirmed that ICICI Securities' year-end targets for major indices are unchanged. The firm expects the Nifty to reach 29,500 by the end of calendar year 2026, with the Sensex targeted at 98,500. This projection is based on a valuation of 21 times the estimated price-to-earnings ratio for FY28. Nifty earnings are forecasted to grow at a compound annual growth rate of 15% over FY26 to FY28, underpinning the healthy market returns anticipated.
He attributed this outlook to a conducive domestic macroeconomic environment, highlighted by consumption-led GDP growth and easing trade tensions. "India offers a perfect trilogy of lower inflation, lower bond yields, and improving growth, supporting a positive equity outlook going forward," Pandey stated, pointing to potential trade deals with the US and EU as additional drivers.
Small-Caps and Mid-Caps Poised for Outperformance
With improving global sentiment favoring India, Pandey sees significant opportunities in small- and mid-cap stocks. He noted that historical data over the past two decades shows a low probability of small caps correcting in consecutive years, at just 14%. Given that the small-cap index declined nearly 6% in CY25 and is down 13% from its peak, there is an 86% chance of a rebound, leading to healthy double-digit returns in CY26.
The Nifty Small Cap index currently trades at about 19 times the estimated P/E for CY27, with earnings expected to grow at a CAGR of nearly 20% from CY25 to CY27. This results in an attractive price-to-earnings growth ratio below 1, making it favorable compared to peers like the Nifty 50 and Nifty Mid-Cap indices.
Consumption Theme Remains Strong Despite Budget
Addressing concerns about the budget's lack of major consumption-boosting measures, Pandey argued that consumption is still a compelling theme. Government initiatives over the past year, such as increased tax relief, rationalized GST rates on daily and premium products, and reduced interest rates, have started yielding results. "These measures have improved volume growth and same-store sales for consumer staple and retail companies from Q3FY26," he explained.
With global uncertainties easing, rural demand recovering, urban areas expected to gradually improve, and input cost inflation stabilizing, the recovery momentum is likely to continue. ICICI Securities maintains a selective stance, favoring food companies in consumer staples and discretionary segments like jewelry, premium apparel, and hotels, which offer good earnings visibility.
Banking Sector Outlook: Strength and Resilience
Pandey highlighted that India's banking sector is entering FY27 with its strongest balance sheet in decades. Credit growth is projected to remain robust at 11-13%, driven by MSME and retail demand, while gross non-performing asset ratios are at a record low of 2.1% as of September 2025. Although volatility in margins may occur due to rate cuts and deposit mobilization challenges, this is expected to normalize.
Continued low credit costs and gradual improvements in operational leverage are set to sustain profitability and earnings resilience in the sector, reinforcing its positive outlook.
Rate Cycle and Market Risks
On monetary policy, Pandey indicated that the current rate-reduction cycle appears to have ended, with the repo rate at 125 basis points in CY25. The status quo decision in February's policy was anticipated, though bond markets saw a slight uptick in yields due to the absence of further open market operation purchases.
When asked about risks, Pandey identified geopolitical tensions as the primary concern that could curb global trade flows. Barring this, most issues, such as trade uncertainty and domestic growth outlook, have been adequately addressed, leaving the market well-positioned for growth.
In summary, Pankaj Pandey's analysis paints a bullish picture for Indian equities, with double-digit returns on the horizon, supported by strong fundamentals and selective investment opportunities, albeit with a watchful eye on geopolitical developments.
