Earnings Momentum Could Turn The Market Tide, Indian Equities Set For H2 Re-Rating: Report

New Delhi: Indian equities may experience a re-rating in valuations during the second half as corporate earnings pick up steam and institutional capital begins flowing back into the market, according to a report from OmniScience Capital. The investment firm suggests that the current market consolidation should be seen as a chance to accumulate stocks rather than a reason to chase those that have already performed well.

Opportunities Identified The report highlights companies benefiting from capital expenditure, energy transition, and infrastructure development as areas of potential opportunity. FPI Inflows Supported by Strong Outlook The report notes that foreign investors continue to buy Indian equities, buoyed by a strong GDP outlook and a recovery in earnings.

However, it advises caution, particularly in mid-cap and small-cap segments where valuations are elevated despite the broader market correction. Trading at High PE Ratios The Nifty Smallcap 250 is currently trading at a price-to-earnings multiple of about 34, while the Nifty Midcap 150 trades at roughly 30. In contrast, the Nifty 100 trades at around 20 times earnings.

Institutional Interest Returns The report indicates that institutional interest is returning to Indian equities, with foreign investors acting as net buyers multiple times following a period of valuation moderation. Support from Domestic Fundamentals India's real GDP growth for FY27 is estimated at around 7%, providing support to domestic fundamentals.

However, high crude oil prices pose a significant macroeconomic risk. FPI Investment Surge in August In August, FPIs poured ₹16,621 crore into Indian equities, extending the inflows from ₹20,200 crore in July. Caution Advised Ashwin K. Shami, President and Chief Portfolio Manager at OmniScience Capital, warns that some stocks may have already priced in several years of earnings growth, leaving little room for disappointment and increasing the risk of de-rating.

Global Risks Remain High Global markets continue to face pressure from higher interest rates and geopolitical uncertainty. The US 10-year Treasury yields are near one-year highs of 4.6%-4.7%. Tensions between the US and Iran have added volatility to crude oil and commodity markets, with the US Federal Reserve's September 16 policy decision expected to be a key near-term trigger for global yields, liquidity, and investor risk appetite.