Markets may remain choppy; IPO Rush won’t hurt liquidity, says Anand Rathi's Pradeep Gupta

India’s equity markets to maintain an upward bias in FY26, supported by strong domestic fundamentals, quality midcap opportunities, and healthy liquidity despite global and valuation headwinds, believes Pradeep Gupta, Chairman of Anand Rathi Share & Stock Brokers. In an interaction with Business Today, he shared his outlook on India’s equity markets.

Gupta remains optimistic about a 'choppy but upward-biased' trajectory for FY26, driven by easing monetary conditions, tax reforms, and resilient domestic demand. While he flags global uncertainties and valuation risks as near-term hurdles, he sees strength in quality mid- and small-cap companies with sound balance sheets. He also believes a robust IPO pipeline and steady SIP inflows will sustain market depth and liquidity. Read the edited excerpts:
 

BT: Indian equity markets hit their 52-week high in their run-up to Diwali and are near their all-time highs. What are your targets for Nifty/Sensex for FY26 and what will be the key triggers that will push the indices to those levels. Also, what are the major factors that may turn headwinds for them?

Gupta: The domestic backdrop remains resilient with the RBI raising its GDP growth forecast and lowering its inflation projection, which signals policy confidence. Key triggers supporting the indices include supportive monetary conditions with an easing bias (25-50 bps expected in this cycle), recent tax changes including GST rate cuts, and regulatory easing for credit and capital markets. Domestic demand, strong SIP inflows, and steady DII support provide a constructive foundation.

However, headwinds persist. Short-term risk-off sentiment driven by US policy uncertainty—including tariffs, immigration changes, and a stronger dollar—continues to weigh on emerging-market flows and the rupee. Valuation concerns for Indian equities remain. Additionally, a busy IPO calendar can temporarily pressure secondary-market liquidity. We view the current environment as episodic volatility against a constructive medium-term trend, expecting a choppy but upward-biased trajectory if global risks remain contained.

BT: Select retail favourite sectors like railway, defence, renewable energy, PSU and others have not lived upto the expectations. What is your view on the midcap and smallcap stocks? Do you think the worst is over or should one expect a rally in the broader market after long underperformance?

Gupta: The earnings picture for midcaps and smallcaps has actually been quite robust. In the Apr-Jun'25 quarter, Nifty Midcap 150 earnings grew by 18%, while Nifty Smallcap 250 earnings were flat mainly due to wide dispersion. These followed strong FY25 earnings growth of 29% and 16% respectively for mid and small cap indices.

Our tilt is towards quality growth with strong balance sheets. We prefer profitable growth companies that can compound earnings consistently in sectors such as financials, select discretionary consumption, capital goods, and services exporters. For sectors like renewables, the GST rate cuts should provide near-term margin relief, with broader benefits becoming more visible from the second half of FY26.

Value can work in specific cases—such as deleveraging or turnaround stories—but requires clear catalysts. The key is focusing on cash-flow visibility, governance standards, and pricing discipline rather than chasing momentum.
 

BT: How do you see the ongoing result season? Which companies/sectors have broadly surprised you and which have turned into disappointments? Do you see rerating for any sector/segment after this results season?

Gupta: Corporate earnings growth in recent quarters has been far from lacklustre. In the Apr-Jun'25 quarter, large cap earnings grew by 8-9%, mid-cap earnings by 18%, with smallcaps showing wide dispersion. These were preceded by 10%, 29%, and 16% earnings growth respectively for large, mid, and small cap indices during FY25.

Regarding sector-specific rerating potential, we see two phases of impact from government GST measures. First, near-term margin relief for companies in consumer goods, renewables, textiles, logistics, and services. Second, a broader boost over the next two to three quarters as lower indirect-tax incidence and easier credit conditions stimulate demand. Benefits should become more visible from the second half of FY26 and broaden into FY27 as working capital pressures ease and consumption strengthens.

Sectors with strong demand drivers remaining intact—such as IT (despite H-1B sentiment concerns) with cloud modernisation, cost optimisation, and AI implementation—should continue to perform well.

BT: Primary market is back in flavour as another series of IPOs worth around Rs 40,000 crore are reported to hit Dalal Street in November 2025. How should investors distinguish diamonds among dirt? Also, will this primary market rush suck-out liquidity from the broader markets?

Gupta: Overall, the IPO environment looks constructive. A heavier IPO slate can momentarily pressure secondary-market liquidity, but this appears to be part of the normal market cycle rather than a structural concern. Recent regulatory measures, including higher financing limits and increased caps on loans against shares, support broader participation.

The key to distinguishing quality IPOs is focusing on three critical factors: cash-flow visibility, governance standards, and pricing discipline. Oversubscription alone is not a substitute for strong fundamentals.

A busy IPO calendar can temporarily divert liquidity from the secondary market, but it also broadens market depth and improves supply. It would become a concern only if mutual fund redemptions rise materially or if IPOs consistently underperform post-listing—neither of which is currently the case. With Rs 28,000 crore monthly SIP inflows and steady DII support, the liquidity environment remains healthy.