Indian Markets Set for Strong Rally: Earnings and FII Inflows to Fuel Growth
Kotak Neo's Shrikant Chouhan predicts a strong rally for Indian equity markets driven by corporate earnings and rising FII inflows.
The Indian equity markets are standing on a "very very strong" foundation, with a positive outlook expected to persist as the festive trading season kicks in. According to Shrikant Chouhan, Head of Equity Research at Kotak Neo, a combination of robust corporate earnings, dipping crude oil prices, and a surge in Foreign Institutional Investor (FII) inflows is creating a fertile ground for a market rally.
The Engine of Growth: Corporate Earnings
A primary driver for this optimism is the performance of Indian companies. Chouhan highlighted that the second-quarter FY27 earnings have shown significant improvement compared to the previous three quarters, providing a solid base for equity growth.
The numbers tell a compelling story: with a year-on-year net profit growth of approximately 19 per cent, the outlook remains bright. Furthermore, a Compound Annual Growth Rate (CAGR) of 15–16 per cent is expected over the next two years, which has caught the attention of global investors.
The FII Surge and Global Shifts
Foreign Institutional Investors are increasingly pivoting toward India. Recent data shows that FII inflows have reached nearly USD 4 billion, with a staggering USD 1.5 billion pouring in during a single trading session. This trend is being further bolstered by upcoming index rebalancing and the benefit of lower crude oil costs.
The AI Factor and Emerging Markets
Interestingly, volatility in the global tech landscape may actually benefit India. Chouhan noted that a potential slowdown in Artificial Intelligence (AI) spending—possibly influenced by political dynamics involving the Democrats—could lead to profit-booking and the liquidation of long positions in global AI stocks.
As investors move away from AI-dominant markets, they are redirecting capital into fixed income and emerging markets like India, where the concentration of AI dominance is relatively lower.
Sectoral Insights: IT and Market Caps
While the overall outlook is bullish, the domestic IT sector presents a mixed bag. Large-cap IT firms may encounter near-term hurdles as they recalibrate their strategies and investments to align with AI advancements.
However, Chouhan sees a silver lining for smaller players. He believes that mid-size and small-size IT companies are well-positioned to perform exceptionally well in the current market environment.
Investment Strategy for Portfolios
For those looking to navigate this landscape, the expert advice suggests a balanced approach:
- Large-Cap Stocks: Investors are encouraged to maintain exposure here due to their stability and attractive valuations. These stocks are typically the first to attract buying interest during market recoveries.
- Mid and Small-Caps: While there is growth potential, Chouhan advises investors to remain highly selective when picking stocks in these categories.
Looking Ahead: Samvat 2083
As the market prepares for the special Muhurat trading session on Sunday to mark the beginning of Samvat 2083, the sentiment remains overwhelmingly positive. While the possibility of some near-term consolidation exists, the overarching trend is expected to be upward, supported by valuations, earnings growth, and the continued moderation of crude oil prices.
"Broadly, I am of the view that yes, we may see some consolidation, but eventually we are expecting the market to move higher," Chouhan stated.