Geopolitics to earnings: Motilal Oswal's Sneha Poddar on where Indian markets headed next

With geopolitical tensions, global trade uncertainty and the Q1FY27 earnings season shaping investor sentiment, market participants are closely tracking where Indian equities are headed next. In an interaction with Business Today, Sneha Poddar, VP of Research, Wealth Management at Motilal Oswal Financial Services, shares her views on market valuations, earnings expectations, sectoral preferences, the outlook for mid- and small-cap stocks, IPO opportunities and the key risks and themes that could drive the next leg of the market rally in 2026. Read the edited excerpts:

BT: How are rising geopolitical tensions and global trade uncertainties likely to impact Indian equity markets in the near term?
Poddar: Geopolitical tensions and evolving global trade policies are likely to keep market volatility elevated in the near term, primarily through their impact on crude oil prices, currency movements, global risk appetite, and capital flows. As a structural importer of energy, any sustained spike in Brent crude pressures corporate operating margins across margin-sensitive sectors like consumer discretionaries, paints, chemicals, and aviation. We saw this just last week, when renewed US-Iran tensions on 8th July pushed Brent past $80/bbl and briefly dragged the Nifty down over 2% in a single session, before markets stabilised within days.

India remains relatively better positioned than many emerging markets owing to its domestic-demand-led economy, improving macro fundamentals, and strong domestic institutional participation. Investors should expect intermittent risk-off phases, but unless these events materially alter the global growth outlook or trigger a sustained spike in energy prices, we believe corrections are likely to remain buying opportunities rather than signalling a structural change in the bull market.
 

BT: What are the key trends investors should watch in the Q1FY27 earnings season, and which sectors are expected to outperform?
Poddar: For Q1FY27, we expect Nifty earnings to grow at approximately 10% year-on-year, marking a healthy acceleration over the previous quarters. Incase of our coverage universe (~385 companies), we expect the a modest 3% YoY decline in PAT, primarily due to significant losses in Oil Marketing Companies (OMCs) following elevated crude prices during the quarter. However, excluding OMCs, corporate earnings remain healthy, with PAT growth expected at 14% YoY, indicating that the underlying earnings trajectory remains robust.

Financials are expected to be the biggest contributor to earnings growth, led by lending NBFCs (+27% YoY), private banks (+10% YoY) and PSU banks (+9% YoY). Outside financials, we expect strong earnings from Metals (+31% YoY), Technology (+14% YoY), Capital Goods (+10% YoY), Retail (+27% YoY), Consumer Durables (+27% YoY), Consumer (+6% YoY), Building Materials (+36% YoY), EMS (+29% YoY) and Telecom, where profits are expected to increase by around 3.3x YoY, aided by Bharti Airtel's performance and lower losses at Vodafone Idea. On the other hand, Oil & Gas is expected to witness a sharp 94% YoY decline in profits due to OMC losses. Automobiles (-3% YoY), Healthcare (-3% YoY) and Cement (-13% YoY) are also likely to report relatively softer earnings.

More importantly, management commentary on demand trends, margin outlook, order inflows, capital expenditure and FY27 guidance will likely have a greater influence on market direction than the reported quarterly numbers themselves.
 

BT: Are current valuations in the broader market, particularly mid- and small-cap stocks, justified, or is a correction overdue?
Poddar: Valuations across parts of the mid- and small-cap universe remain elevated relative to historical averages, but it would be inappropriate to treat the entire segment uniformly. The Nifty-50's one-year forward P/E stands at 18.6x, trading at an 11% discount to its long-term average of 21x and 25% below the peak levels seen in September 2024, making large-cap valuations relatively comfortable.

In contrast, the Nifty Midcap-100 and Nifty Smallcap-100 trade at 27.3x and 22.4x one-year forward P/E, respectively. While these multiples remain 16% and 27% above their long-term averages, they have corrected 23% and 7%, respectively, from their September 2025 peaks.

Several companies continue to justify these premium valuations through superior earnings growth, strong return ratios and structural market-share gains. However, the market has become increasingly selective. Companies delivering consistent earnings and execution are likely to sustain premium multiples, while businesses with weaker earnings visibility or stretched valuations could witness meaningful corrections. We believe the next phase of returns will be driven more by earnings than valuation expansion, making stock selection significantly more important than simply participating in the broader mid- and small-cap rally.
 

BT: Is the market witnessing a shift from mid- and small-caps to large-cap stocks, and how should investors position their portfolios?
Poddar: We do not see a broad-based shift from mid- and small-caps to large caps. Instead, the market is becoming increasingly theme-driven and stock-specific, with investors favouring companies that offer strong earnings visibility, quality management, and reasonable valuations, irrespective of market capitalization.

Following the sharp rally over the past few years, valuation dispersion within the broader market has widened considerably. As a result, while some mid- and small-cap stocks continue to command premium valuations supported by robust earnings growth, others have become vulnerable where fundamentals do not justify the multiples. Similarly, several large-cap sectors now offer attractive valuations alongside improving earnings visibility.

Rather than making allocation decisions solely based on market capitalization, investors should focus on businesses with sustainable earnings growth, healthy cash flows, strong return ratios and long-term competitive advantages. In our view, the next phase of market performance is likely to be driven more by earnings delivery than by size, making stock selection far more important than a simple large-cap versus mid-cap debate.

BT: Which sectors and investment themes are likely to lead the next leg of the market rally over the next 6–12 months?
Poddar: We continue to favour themes that are backed by structural earnings growth rather than cyclical momentum. Within financials, we remain constructive on diversified financials, NBFCs, exchanges, asset management companies and PSU banks. Manufacturing and industrials continue to be one of our highest conviction themes, supported by government capex, private sector investments and India's expanding manufacturing ecosystem.

Defence remains particularly attractive given the government's strong procurement pipeline, healthy order books and increasing export opportunities. Electronics Manufacturing Services (EMS), capital goods and industrial automation also continue to benefit from the broader manufacturing push.

On the consumption side, we remain more positive on discretionary consumption than staples, as improving rural demand, moderating inflation and stable interest rates should support discretionary spending over the coming quarters.

BT: With IPO activity remaining strong, how should investors evaluate new listings amid rich valuations and mixed listing performances?
Poddar: The primary market continues to witness healthy participation, reflecting strong domestic liquidity and investor confidence. However, investors should avoid evaluating IPOs purely on listing gains.

The focus should instead remain on business quality, scalability, competitive advantages, management credibility, cash-flow generation, return ratios, and valuation relative to listed peers. Rich valuations leave little room for execution disappointments, making disciplined stock selection even more important.

Companies with sustainable business models and long earnings runways can create long-term shareholder value even if listing gains are modest, whereas businesses relying primarily on favourable market sentiment may struggle after listing.

BT: What is your outlook on the Indian stock market for the rest of 2026, and what are the biggest risks and opportunities investors should keep in mind?
Poddar: We remain constructive on Indian equities for the remainder of 2026. After an extended phase of consolidation, valuations have moderated across several sectors, while the earnings outlook remains healthy, with Nifty earnings expected to grow at a mid-teen CAGR over the next two years. India's structural growth drivers, including manufacturing, infrastructure, formalisation of the economy and rising domestic financialisaton- remain firmly intact.

Key risks include global trade and tariff developments, geopolitical uncertainties, crude oil prices, the pace of FII flows, and the market's ability to absorb a strong IPO pipeline.

On the opportunity side, continued government focus on infrastructure and manufacturing, supportive government policies, improving domestic demand, and a recovery in corporate earnings provide a strong foundation for the market. We expect the next phase of returns to be increasingly stock-specific, rewarding companies with consistent earnings growth, strong balance sheets and robust cash flows.