Indian equities to face near-term volatility, recovery expected in H2CY25: Report

Mumbai (Maharashtra) [India], February 18 (ANI): Indian equity markets are likely to witness heightened volatility in the near term, with a gradual recovery expected in the second half of the calendar year 2025 (H2CY25), according to Emkay Institutional Equities.

The firm forecasts Nifty to reach 25,000 by December 2025, backed by improving consumption trends, a revival in unsecured lending, and increased government welfare spending.

The brokerage remains Overweight on Discretionary, Real Estate, and Healthcare sectors, citing strong demand potential.

Industrials, IT, and Energy have been downgraded to a Neutral stance, while Financials, Staples, and Materials remain Underweight due to valuation concerns and structural headwinds.

A rebound in discretionary consumption is expected in 2-3 quarters, driven by improved IT hiring, better liquidity, and a pickup in retail lending.

Additionally, government-led welfare programs, especially women-centric schemes and a strong winter crop sowing, are expected to boost rural consumption.

India’s capital expenditure (capex) growth, which stood at a 31 per cent CAGR between FY21-24, is expected to slow to 10-13 per cent due to election-related constraints.

However, a rebound in FY26 is anticipated as policy clarity returns. Green energy remains a bright spot amid concerns over capital-heavy sectors.

Foreign portfolio investor (FPI) selling is expected to subside by Q2CY25, aided by stabilizing valuations, a peak in the U.S. Dollar Index (DXY), and easing rupee depreciation concerns. The RBI’s liquidity injection is likely to further support domestic equities, particularly in the BFSI sector.

The earnings downgrade cycle is nearing an end, with FY26 consensus estimates already cut by 3.9 per cent since January 2025. Mid-teens earnings growth is projected for FY26, led by Financials, Metals, and Energy.

Nirav Sheth, CEO – Institutional Equities, Emkay Global Financial Services, stated, “Markets tend to overreact in both directions, and the current volatility reflects that. India’s macro fundamentals are strong with a low current account deficit, controlled fiscal deficit, and an accommodative monetary policy.”

He added, “We believe the worst of the earnings downgrade cycle is behind us, and recovery in H2CY25 will be driven by renewed government spending and tax relief-led consumption growth. It is time to buy.”

Seshadri Sen, Head of Research & Strategist – Institutional Equities, Emkay Global Financial Services, added, “Despite short-term headwinds, the structural investment case for India remains intact. The shift in sectoral dynamics presents strong opportunities in Discretionary, Real Estate, and Healthcare.”

With macroeconomic fundamentals remaining resilient and a recovery expected in the latter half of the year, long-term investors are advised to adopt a stock-specific approach while navigating short-term volatility.