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Informist, Friday, Jul. 4, 2025

 

By Anjana Therese Antony 

 

MUMBAI - Investors are heaving a sigh of relief with respect to the domestic equity market as favourable macroeconomic factors pave the way for bulls in the near-to-medium term. The market, which was under pressure a couple of months ago, has recovered from the heat of US tariffs and the geopolitical tension in West Asia. With the US economy expected to see even more headwinds, experts believe India will once again become a preferred bet among emerging markets, supported by a good monsoon, better liquidity, and an increase in the government's capital expenditure. All these are likely to help the benchmark Nifty 50 to continue its northward journey for the fifth consecutive month in July.

 

Analysts are no longer worried about the valuations becoming rich with the market factors turning in favour of the bulls. "I think we would want to believe that the Indian market multiples are going to remain rich...but it's not going to be a concern," Pankaj Pandey, head of research at ICICI Securities, said. Valuations will remain rich on account of addition of stocks with high multiples to the Nifty 50 and the comfortable growth the country is posting, he said. All eyes will now be on the June quarter earnings season that will kickstart next week. While earnings growth is likely to remain muted in the reporting quarter, a meaningful improvement is expected from the second half of the current financial year. 

 

The Nifty 50 is expected to find resistance at 25900 points in July, according to the median of estimates from 10 broking firms Informist has polled. This is over 2% higher than the spot level of 25384.10 points at 1420 IST, but still 1.4% lower than the record high of 26277.35 points hit in September. The index rose 15% in the last four months. 

 

What could also add to the optimism is the significant easing of the bearish sentiment among foreign investors towards the domestic market. It is now widely accepted that India will be the least impacted by US tariffs and will see benign inflation due to the de-escalation in West Asia, which could attract more foreign inflows, research reports said. Foreign portfolio investors net purchased shares worth $5.62 billion in Apr-Jun after net offloading equities worth $13.77 billion in the previous two months. 

 

On the other hand, the market has not factored in all the possible negative triggers regarding the US tariffs and tension in West Asia. As the fog around US tariffs and trade deals has not completely cleared, market participants don't rule out the possibility of a near-term correction in the Nifty 50 even though the quantum of the fall could be limited. As per the median of estimates, the Nifty 50 is likely to find support at the psychologically important level of 25000 points, which is 1.5% lower than the current level and almost 5% lower from its record high. However, this is 15% higher than the 10-month low the index hit in April. 

 

EARNINGS SEASON

In the upcoming Apr-Jun earnings season, corporate India's financial growth is largely expected to remain muted as heavyweight sectors such as information technology and banking are unlikely to see major improvement. IT and financial services stocks together account for almost half the weightage of the Nifty 50. The cumulative net profit and revenue of India's top 50 large-cap companies had risen around 6?ch year-on-year in the March quarter. This was the highest bottom line growth figure these companies reported in four quarters, while the rise in top line was largely consistent with the growth posted a quarter ago as well as a year ago.

 

However, a meaningful recovery in earnings is anticipated from the second half of the current financial year, market experts said. "We are expecting 8% kind of earnings (growth) this year (2025-26 (Apr-Mar)), followed by about 15.5% kind of earnings in FY27," Pandey of ICICI Securities said. While some more earnings downgrades are expected in the reporting quarter, analysts said the quantum of cuts would be significantly lower than the previous quarters. 

 

GLOBAL CONCERNS

The focus is still on US tariffs amid the sharp fall in global crude oil prices after the de-escalation in tension between Iran and Israel. While trade talks between the US and some of its key trading partners are underway, there is no clarity about what the outcome will be. "The situation can go either way because India is not relenting on whatever the US is asking. The US needs a deal more than India," Vinit Bolinjkar, head of research at Ventura Securities, said. Logically, the deal should go through, but with US President Donald Trump, "you never know," he said. 

 

The US economy is not going to do well, which makes the outlook for all other markets relatively better, Pandey of ICICI Securities said. The foreign flow data is no longer negative for the heavyweight banking and financial services sector and the selling pressure has tapered off in the oil and gas space, he added. 

 

Investors' focus has turned back to US tariffs as global crude oil prices eased significantly after the ceasefire between Iran and Israel continued to hold. Reflecting the uneasy peace, Brent crude oil futures fell sharply from their recent peak of $80 per barrel and are now below $68 per barrel on the Intercontinental Exchange. 

 

However, the market has not factored in the worst-case scenario. In case of a negative outcome on tariffs and in West Asia, Bolinjkar of Ventura Securities expects the Nifty 50 to find strong support at 25200 points, which is 0.7% down from the current level. But if this level is breached, he expects the index to fall all the way to 24600 points, he said. 

 

SPECIFIC SECTORS

Analysts echoed cautious approach towards the information technology sector due to near-term headwinds, including weak discretionary spending and worries about demand, coupled with risks associated with US tariffs. Indian IT companies earn more than half of their revenue from the US and the risk to US economic growth and inflation from tariffs has been weighing on the sector. 

 

Experts are also cautious on consumer-facing companies--such as food and beverages, automobile, paint, quick-service restaurants, and staples--due to their relatively high valuations. "We see little merit in the current multiples of Indian consumer companies based on any valuation framework--absolute, relative to history, and relative to global peers. The first two are understandable, but the third is quite surprising," Kotak Institutional Securities said in a report.

 

Their valuations are higher than their global peers despite likely similar growth in earnings in the near term, similar earnings growth in the past five years in most categories, and lower-to-similar growth in several discretionary categories in the past decade, the broking firm said. These companies have delivered lower or flat earnings growth in general compared to their global peers in the past few years and this underperformance may continue, Kotak Securities said. However, an above-normal monsoon and a gradual recovery in rural demand are likely to cushion sectors such as FMCG and automobiles, which depend heavily on rural demand. 

 

On the other hand, analysts are bullish about banking and financial services, defence, textiles, power, and manufacturing. The impact of RBI's measures to boost liquidity is expected to be felt from the second half of the current financial year. The government's capital expenditure push is also expected to boost earnings of companies in capex-heavy sectors such as defence and infrastructure companies, analysts said. 

 

Following are the support and resistance levels for the Nifty 50 index for July based on responses from 10 brokerages:

 

Broking Firm	Support 1	Support 2	Resistance 1	Resistance 2
Axis Securities	25400	24900	25800	26200
Globe Capital Market	25000	--	25900	26200
HDFC Securities	25500	--	25800	25600
ICICI Securities	24800	--	25800	--
IDBI Capital Markets & Securities	25000	--	26200	26500
Kotak Securities	25200	--	26000	--
Lakshmishree Investment and Securities	25050	24800	25847	26200
Religare Broking	24900	24400	26300	26800
SAMCO Securities	25000	24850	25900	26100
Sharekhan	25200	--	26000	--
MEDIAN	25000		25900

 

End

 

US$1 = INR 85.43

 

With inputs from Team Informist

Edited by Vandana Hingorani

 

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