Indian Stock Market Primed for Historic Breakout
The Indian equity market is standing at the precipice of a historic moment. With the September quarter (Q2FY26) earnings season concluding on a robust note, benchmarks Sensex and Nifty 50 are gearing up to shatter their previous all-time records in the near term. A confluence of positive factors, including the prospect of an India-US trade agreement, favourable growth-inflation dynamics, and attractive large-cap valuations, has created a perfect storm for a market upswing.
Market Benchmarks Approach Uncharted Territory
On November 20, the 30-share Sensex touched a 52-week high of 85,801.70, while the Nifty 50 reached 26,246.65. The markets are now within striking distance of their historic peaks. The Sensex aims to surpass its lifetime high of 85,978.25, achieved on September 27 last year. Similarly, the Nifty 50 is closing in on its own record of 26,277.35, set on the same day.
This bullish sentiment is underpinned by a significant shift in corporate earnings. After nearly six quarters of subdued performance, analysts project a strong rebound starting from the second half of the current financial year (H2FY26), a trend expected to continue into FY27. This earnings recovery is being fuelled by supportive government policies, accommodative monetary stance, improved liquidity conditions, strengthening India-US relations, resilient domestic demand, and a lower base for comparison.
Expert Views and Investment Strategy
Brokerage firm Motilal Oswal Financial Services maintains an optimistic outlook on domestic equities. The firm cites improving earnings momentum, reasonable valuations, the government's unwavering policy support, solid macroeconomic indicators, and a potential easing of geopolitical tensions as key drivers. They also note that foreign institutional investor (FII) selling may be bottoming out.
As the market sentiment brightens, investors are contemplating adjustments to their mutual fund strategies. S Naren, Executive Director and Chief Investment Officer at ICICI Prudential AMC, highlighted the strength of India's macroeconomic backdrop, with GDP growth at 7.8%, manageable fiscal and current account deficits, and record-low inflation. His primary caution revolves around valuations, which, despite some moderation, are not cheap. He suggests that large-caps currently present a better risk-reward profile compared to mid and small-caps.
For investors using systematic investment plans (SIPs), Naren recommends allocations towards large-cap, flexi-cap, and hybrid strategies. He emphasised that hybrid and multi-asset funds can be effective tools for managing market volatility, offering a degree of downside protection while maintaining equity exposure.
Echoing the long-term perspective, Nilesh Shah, Managing Director of Kotak Mahindra AMC, described mutual fund investing as a marathon, not a sprint. He advised investors to stick to their SIPs religiously for the next 6-12 months to average out market noise. Shah recommends large-caps and quality flexi-caps for stability and balanced advantage funds to navigate market fluctuations tactically.
Shah believes that over a 2-5 year medium-term horizon, this is an opportune time to gradually increase equity allocation, especially during market corrections that make valuations more attractive. He identified themes like private banking revival, telecom consolidation, pharma exports, rural consumption, and selective manufacturing as potential sources of market outperformance. His final advice is to maintain disciplined asset allocation, blend equities with gold and debt, and moderate return expectations to low-teens, avoiding the greed for unrealistic 20%+ returns.
