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Informist, Monday, Jun. 2, 2025

 

By Anshul Choudhary

 

MUMBAI – The Nifty 50 is expected to rise in June on hopes that the worst of the earnings slowdown is behind and the US would sign trade deals with more countries, giving some comfort to investors amid global trade tensions. However, any gains are likely to be limited owing to high stock valuations, which also poses a risk of investors booking profits this month, market participants said.

 

The March quarter earnings have been better than expectations, which has raised hopes that earnings downgrades are largely done. Further, analysts increasingly believe reciprocal tariffs by US President Donald Trump were a tactic to force other countries to lower tariffs, and the US is unlikely to keep tariffs high for a longer period.

 

This should support gains in the Nifty 50 in June if there are no negative surprises on the global front. But, the Nifty 50 is expected to face resistance at 25500 points, over 3% higher than the current levels, according to the median of estimates of 11 brokerages. "Our models show reasonable returns (in two years)... but it could be lower than historical averages, considering valuations where they are," George Thomas, fund manager at Quantum Mutual Fund, said.

 

The market has already priced in a large part of the positive news since Trump announced a 90-day pause in early April. "Markets are now fully pricing in an imminent India-US trade deal," BofA Global Research said in a strategy report Wednesday. The Nifty 50 has risen nearly 14% since hitting the 52-week low of 21743.65 points over a month back. Monday, the Nifty 50 closed at 24716.60 points. Considering the sharp rise in a matter of weeks, analysts expect the index to be at risk of profit booking before it rises again. According to the median of estimates from 11 brokerages, the Nifty 50 may find support at 24000 points, down 3% from the current levels. 

 

High valuations have already started to affect returns in the market. The Nifty 50 rose only 5% in FY25 after rising over 28% in the previous financial year. BofA Global Research said it does not see any upside to their 2025-end Nifty 50 target of 25000 points, indicating marginal returns for the index in 2025 from here.

 

"Nothing has changed from a valuation perspective (compared to last year), there are pockets in the market which continue to be extremely expensive," said Pawan Bharadia, co-founder and chief investment officer at Equitree Capital, a Mumbai-based portfolio management service provider. "One should focus on a ground-up approach, there are still good companies."

 

POSITIVE SENTIMENT

Sentiment in the market is positive and supportive of further gains. Lower inflation, along with the income tax sops announced in the Budget, is expected to help consumption. Hopes of above-normal monsoon, the possibility of more cuts in interest rates by the Reserve Bank of India, and higher capital expenditure by the government are likely to aid GDP growth in India.

 

Better-than-expected March quarter earnings have also supported gains in the market. The cumulative net profit of Nifty 50 companies, excluding exceptional items, fell by over 1%, but this was better than expectations of a fall of 5% in an Informist Poll. Although earnings growth was poor in 2024-25 (Apr-Mar), the March quarter results have raised hopes that earnings downgrades are largely done. "We view current Nifty (50) levels as fundamentally supported, with further upside likely as the earnings cycle shows signs of inflection... We see downgrades over and pick up in earnings in H2FY26 (Oct-Mar)," Emkay Global Financial Services said in its strategy report Saturday.

 

All of this comes at a time when foreign investors have started buying Indian stocks again. Foreign portfolio investors net bought Indian equities worth nearly INR 200 billion in May, the highest net investment by FPIs in a month since September last year.

 

The foreign flows have come to India despite 10-year bond yields in the US again rising to around 4.5% in the face of inflation risk from US reciprocal tariffs. Friday, yields on the 10-year US bonds settled at 4.41%. Last year, high bond yields in the US were being touted as one of the major reasons for foreign investors avoiding emerging markets such as India. In 2024, FPIs net bought Indian equities worth only INR 4 billion.

 

Market participants said that while yields might be attractive in the US, the economy's weak outlook due to tariffs and high debt levels may deter foreign investors from raising their investments in the US. Elara Securities said in a report Friday that foreign flows into the US turned negative for the first time in six weeks. "Flow patterns in the coming weeks will be crucial in determining whether this marks the beginning of a broader trend reversal in US markets," the brokerage said.

 

THE TRUMP CONUNDRUM

Latest developments have made analysts believe that Trump is not keen on keeping tariffs high for a longer period and merely using tariffs as a tool to bring countries to cut duties on US goods. Trump was quick to announce a 90-day pause on reciprocal tariffs just a few days after imposing them. Since then, the UK has signed a trade deal with the US, and both the US and China have agreed to bring down tariffs against each other.

 

This has raised hopes that countries, including India, will be able to strike deals with the US. "Worries around reciprocal tariffs have largely receded, and we see the focus shifting to bilateral trade treaties," Emkay Global said in the strategy report.

 

While hopes are up, uncertainty around Trump's actions may derail the market's positive momentum. A day after Emkay Global expressed optimism about reciprocal tariffs, trade tensions with China have flared up again. The US and China have both accused each other of violating the trade understanding reached in Switzerland. Trump over the weekend even announced plans to raise tariffs on steel imports to 50% from 25%, putting countries such as the UK in an awkward situation as they have already signed a deal with the US on steel-related tariffs.

 

Although the pause in reciprocal tariffs is in effect, the base tariff of 10% is still applicable. Analysts acknowledged that tariffs are now higher globally compared with a few months back, and can hurt growth globally.

 

MODEST EXPECTATIONS

A fall in the cumulative net profit of the Nifty 50 companies in the March quarter has pushed analysts to keep their earnings estimates modest. Analysts' estimates for Nifty 50's earnings growth in FY26 range from high single digits to low double digits, which some feel are still at risk of downgrades. In its report, BofA Global Research said Indian markets have not priced in any slowdown in global growth.

 

"IT has not been getting as many large number of projects. Consumer companies are still not seeing the kind of demand pick-up. Sometimes it is the rural market which upsets, sometimes it is the urban market which upsets. Oil and Gas (sector) is impacted due to the global slowdown," Bharadia of Equitree Capital said. He pointed out that niche segments, such as ancillary companies in the manufacturing sector, have better opportunities compared to those with large global exposure.

 

An uncertain global environment with trade deals with the US yet to materialise poses risks to the earnings of companies that predominantly depend on export earnings. The information technology sector, which has over 11% weightage in the Nifty 50, is at the biggest risk. With risks of interest rates being higher for longer in the US, IT companies' clients in the US have already begun pausing their orders and sector analysts warn it will affect earnings growth in the June quarter.

 

Further, not everyone is convinced that tax rebates will lead to a revival in consumption in India. Some analysts said that underwhelming job creation, high tax rates, and lower household savings are likely to limit growth in India. Pointing to struggles in the consumption segment, Maruti Suzuki Chairman R. C. Bhargava told Business Standard Monday that high prices of small cars have hit demand. Only lower duties can revive sales of small cars, he said.

 

Following are the support and resistance levels for the Nifty 50 index for June, based on responses from 11 brokerages:

 

Brokerage	Support 1	Support 2	Resistance 1	Resistance 2
Anand Rathi Shares and Stock Brokers	24000	-	25500	-
Axis Securities	24350	23850	25200	25700
Choice International	24600	24400	24900	25200
Globe Capital Market	24480	24000	25500	25600
HDFC Securities	24400	-	25300	-
ICICI Securities	24300	24200	25500	-
Kotak Securities	24470	-	25200	25300
Lakshmishree Investment and Securities	24400	24200	25200	25847
Religare Broking	24100	23600	25200	25800
SAMCO Securities	24300	24000	25800	-
Sharekhan	24000	-	26000	-
Median	24000		25500

 

End

 

With inputs from Anjana Therese Antony, Akash Mandal, and Simran Rede

 

Edited by Saji George Titus

 

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