Stock market outlook: Are Indian equities attractive after correction? What SBI Securities says

Indian equities remain volatile amid geopolitical tensions, elevated crude oil prices and uncertainty over global interest rates. In an interview with Business Today, Mufaddal Matcheswala, Chief Business Officer – Capital Market at SBI Securities, discusses market valuations, earnings trends, foreign investor flows and IPO pricing, while outlining the investment strategy investors should consider during the ongoing market correction. Read the edited excerpts: 

BT: Indian equities have witnessed heightened volatility and a correction amid global uncertainties. How much of the recent weakness is driven by fundamental concerns versus sentiment and profit-booking? Are valuations becoming attractive at current levels?
Matcheswala: I believe, recent weakness in the domestic equities is primarily on account of global headwinds, rather than structural domestic macro failures. The domestic macroeconomic environment continue to remain highly resilient despite multiple global headwinds. India continues to retain its crown of “fastest growing large economy”, supported by 2 large credible institutions - RBI and IMF upgrading their respective GDP growth forecast to 7.1% FY27 and 7.0% each for CY26/CY27. This resilience is further backed by healthy growth in lead indicators like credit growth, 2W/PV sales, GST collection et al.

Over the last 6-12 months, sentiments in domestic equities have been pressured by elevated crude oil prices, triggered by ongoing conflict involving Iran and the US, alongside shipping disruptions in key shipping routes such as Strait of Hormuz. Concurrently, elevated bond yields across major developed economies and slowdown in the earnings of large Indian corporates has temporarily upended the immediate investment thesis of domestic equities.

Post 24 months of consolidation, Nifty50 valuations have turned attractive. The index is trading comfortably below its 10 year historical average of 20.0x. Moreover, during FY26-FY28E period, Nifty 50 earnings CAGR is likely to accelerate to low double-digit range and this, coupled with attractive valuations, should be one of the key catalysts to attract FII flows to India once the global macro headwinds subsides and USDINR stabilizes.

Investors are advised to adopt disciplined, bottom-up stock picking strategy to identify fundamentally sound businesses trading at attractive valuations. Novice investors should deploy money in the equities through MFs and should continue with the SIP to take advantage of rupee cost averaging.

BT: How are geopolitical tensions, crude oil price movements, global interest-rate expectations and currency fluctuations affecting the outlook for Indian equities? Which of these risks poses the biggest threat to the market?
Matcheswala: The primary downside risk to Indian equities in the short to medium term is a deterioration in the geopolitical environment, which could result in a sustained surge in energy prices alongside potential supply chain disruption due to trade tariff. Global interest rate expectations and currency fluctuations are the secondary by-product of the volatile energy prices and its subsequent impact on the inflation globally. Therefore, crude oil price stabilisation is the key prerequisite for any sustained recovery of Indian equities.

BT: How have the second-quarter results reported so far compared with market expectations? Which sectors are showing resilience, and where are you seeing earnings downgrades or signs of demand weakness?
Matcheswala: From the sectoral perspective, majority of the businesses from heavy weight sectors such as Banking & IT continue to deliver performance which is in-line with expectations. Consumer discretionary businesses across hotels, jewellery and new age consumer platform businesses continue to surprise the street in terms of performance. Consumer staple businesses are reporting inline set of results with cautious growth outlook due to likely weakness in rural demand on the back of weaker than expected monsoon and persistent inflationary pressure across commodity basket including packaging materials. Building material segments to be continuing its healthy growth momentum trend of 1QFY27. Many mid, small and micro-cap businesses are delivering robust growth coupled with optimistic growth outlook.

BT: Foreign institutional investors have been a key driver of market volatility. Can domestic institutional investors and retail flows continue to cushion foreign selling, or could sustained FII outflows put further pressure on benchmark indices and broader markets?
Matcheswala: DII and retail investors have continued to pose faith in Indian equities with their holdings at record-high levels. Overall, DMF and Banks, FIs & Insurance held 18% ownership in NSE500. Domestic liquidity continues to be robust with monthly gross MF SIP inflows hovering closer to life highs of over Rs 32,000 crore and number of demat accounts crossing 24 crore mark.

Having said that, I believe sustained FII inflows remain critical for robust price discovery. As external macroeconomic risks recede, long only FIIs will flock back to Indian equities. Relaxation of capital gains tax for FIIs, sustainable earnings recovery and reversal of AI trade globally can act as catalyst in the short term for FII inflows. FIIs have been increasing stake in few businesses, which are not part of the benchmark indices and hence, this further validates the thesis that if Indian companies are able to demonstrate earnings growth visibility, foreign investors are willing to take stock specific bet in India.

BT: With large IPOs such as Jio Platforms attracting investor attention amid market volatility, are IPO valuations becoming disconnected from secondary-market valuations? How should investors assess the risk-reward in the current primary-market environment?
Matcheswala: The primary markets remains highly active with large issues like Jio Platforms taking centre stage. However, all the issuances are priced attractively in terms of balance of growth potential, moat in the business and valuations. Investors are recommended to understand the business model and identify growth levers which will drive sustainable earnings growth in medium to long term. Street is willing to pay premium to businesses which have a) technological moat or access to new age technology creating strong entry barrier b) strong brand with pricing power c) well established and fast growing platform and related ancillary businesses with rapidly expanding TAM and d) traditional consumer businesses which are witnessing acceleration in shift from unorganised to organised segment.

Investors should selectively filter such businesses to balance the risk-reward in the primary markets. Profit booking is equally vital, if valuation turns extreme expensive, post healthy gains within 1-3 months of the listing, as street sometimes may go overboard and start discounting the growth of next 3-4 years.

BT: In the current environment, which sectors or market-cap segments—large-caps, mid-caps or small-caps—offer the most attractive risk-reward? Should investors accumulate stocks gradually during the correction, hold cash, or wait for clearer signs of a recovery?
Matcheswala: Investors should avoid trying to time a market bottom and are advised to adopt market cap agnostic bottom-up approach. Investors should gradually deploy the capital and accumulate stocks directly through equity SIP and/or MF. I feel as the crude oil prices cools-off, Indian equities are positioned for a swift recovery and in the hindsight, this will also be one of the missed golden opportunities. Historically, markets have consistently climbed the wall of worry and have conquered new heights despite multiple challenges over the last 3 decades. Staggering capital deployment with medium to long term investment horizon is the most effective strategy in the current uncertain environment. Traders, especially leveraged guys, should ensure that SL are strictly adhered too and should not get emotionally attached to the stocks.