How will select stocks lead Dalal Street's next rally

Geopolitical tensions, the exit of foreign investors, muted earnings, and the uncertainty over US President Donald Trump’s trade policies kept markets and India Inc on tenterhooks this past year. Yet, on Dalal Street resilience shone through.

Forty-five of the 50 companies that make up the NSE Nifty50 index brushed off the volatility, posting gains in their one-year average market capitalisation. The benchmark index’s average market valuation rose nearly 16% year-on-year (YoY) to around Rs 195 lakh crore as of June 30, from Rs 168 lakh crore a year earlier.

Analysts believe this forward march could continue, though at a more modest pace.

“Earnings growth and re-rating of valuation multiples are the two key drivers of growth in market capitalisation,” says Sandip Bansal, Deputy CIO, ASK Investment Managers. At present, the market is trading at about 21 times price-to-earnings (P/E) multiple on one-year forward earnings, in line with the 10-year average.

It is reasonable to expect markets to grow in line with earnings, which are likely to rise in the low double digits, Bansal says. “The key concern is earnings growth,” he adds.

Retail firm Trent, part of the Tata group, was at the head of the Nifty pack with its one-year average market cap surging 96.24% to Rs 2.18 lakh crore, as on June 30. After a 4% rise in consolidated profit after tax (PAT) in FY25 to Rs 1,534 crore, Trent reported a robust 23.8% growth in PAT in Q1FY26 to Rs 415 crore.

According to Motilal Oswal Financial Services, Trent is making a push in Tier-II and III cities with significant long-term potential, although revenues in these markets may differ from mature metro locations.

Eternal (formerly Zomato) came a close second with a 92% jump in its market cap. “At least for the next two years, we feel that the growth rates will be high as we are still building out more infrastructure, and getting to 3,000 stores will take time,” CFO Akshant Goyal told analysts. Eternal’s FY25 PAT soared over 50% to Rs 527 crore, while sales jumped 67% to Rs 20,243 crore.

Other notable gainers were Bharat Electronics (up 67%), Mahindra & Mahindra (up 59%), and Bharti Airtel (up 55%).

Bharat Electronics (BEL) saw its PAT grow 34% in FY25 with a record order book of Rs 71,650 crore. In BEL’s latest annual report, Manoj Jain, its Chairman and Managing Director, was quoted as saying that good order inflow is expected over the next two to three years.

Meanwhile, M&M and Bharti Airtel posted 12% and a staggering 477% growth, respectively, in PAT in FY25.

On the flip side, IndusInd Bank (down 28%) and Asian Paints (down 16%) saw steep declines in market cap on the back of subdued performances. IndusInd Bank’s PAT tumbled 71% in FY25, while Asian Paints posted a 33% drop amid weak urban demand and aggressive pricing.

Growth in the Nifty is expected to be driven by select sectors that are showing resilience in earnings, structural tailwinds, or benefitting from policy and macro tailwinds. Analysts are positive on a couple of sectors like financial services, consumer goods, infrastructure, capital goods, and oil and gas, among others.

Nikunj Saraf, VP of Choice Wealth, feels financial services remains the heavyweight and is expected to lead, supported by strong loan growth and stable asset quality. The IT sector has seen some softness lately, but deal wins, and the digital transformation trend have continued apace, so it may surprise on the upside.

Saraf adds that the energy and oil and gas space are interesting pockets, especially if crude prices stay elevated. Then there’s consumer—both staples and discretionary—that could benefit from festive demand and rising incomes. Lastly, infrastructure and capital goods are poised to do well, thanks to government spending.

Vipul Bhowar, Senior Director of Listed Investments at wealth advisory firm Waterfield Advisors, sees infrastructure, power—especially renewables—financial services, consumer goods, and defence as the key growth engines.

Additionally, he believes financial services sector is expected to contribute significantly, along with the consumer goods and defence industries. “These areas present promising opportunities for expansion and development in the market,” says Bhowar.

Anil Rego, Founder and Fund Manager at Right Horizons PMS, sees push from financials, cement, pharmaceuticals and consumer durables sectors.

“Despite a moderation in profit growth, financials remain core to Nifty50 weightage and are expected to benefit from lower interest rates, stable asset quality, and cost rationalisation,” says Rego. Meanwhile, with the government’s continued push for infrastructure, recovery in rural housing, and cooling input costs, margins are likely to expand in the cement sector.

On the pharma sector, Rego says with global health spending on the rise and India’s strong positioning in low-cost manufacturing, the sector is likely to see an uptick in market cap. He also adds that a low base, festival-led demand, and improving rural sentiment should aid both volume and margin expansion, supporting higher valuations and market cap growth of the consumer durables sector.

Despite the optimism, there’s no ignoring the heightened global volatility. Export-oriented sectors are likely to face pressures, including higher tariffs and slow growth in developed economies. In August, Trump doubled US tariffs on India to 50%, penalising the country for purchasing Russian crude.  

“If high tariffs impact sales of Chinese goods in the US, China could export to other countries at lower prices, potentially impacting volumes and margins of Indian companies,” says Bansal of ASK Investment Managers.

Bhowar expects 8-9% growth in Nifty’s market cap in the next year but cautions against risks from slower domestic growth, foreign capital outflows, and macro instability. But, he notes that India’s recovery, demographic advantage and technological progress—especially in AI—create a “vibrant environment for growth and opportunity.”

Dalal Street’s resilience will be put to the test, but companies and sectors that combine earnings visibility with structural growth tailwinds could be rewarded.

@iamrahuloberoi