Daily Voice: Market correction over? This CIO sees above-average returns in Samvat 2083, picks 3 sectors

Of the roughly 80 percent of companies that have reported Q2 FY27 results, revenue and EBITDA have grown 21 percent and profit after tax 20 percent. Index earnings are projected to grow about 18 percent in FY27 and 14 percent in FY28, said Neelesh Surana of Mirae Asset.

Neelesh Surana is the Chief Investment Officer at Mirae Asset Mutual Fund

Constructive on equity markets for Samvat 2083

Earnings growth should drive above-average returns in Samvat 2083

Prefer financials, consumer services, healthcare for Samvat 2083

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Neelesh Surana, Chief Investment Officer at Mirae Asset Mutual Fund, expects Indian equities to deliver above-average returns over the next year, supported by an earnings recovery and a reversal of the de-rating driven by foreign investor selling.A two-year time correction appears to have run its course, and much of the risk is already priced in, Surana said in an interview with Moneycontrol. While near-term market movements remain difficult to predict, he is constructive on equities as earnings growth has revived over the past two quarters.Financials, consumer services and healthcare are his preferred sectors for Samvat 2083. He remains marginally underweight on IT services, citing uncertainty over whether artificial intelligence represents a structural disruption or a cyclical slowdown for the industry.Edited excerpts:Is the worst over? Can Samvat 2083 deliver 15–20 percent returns?We are constructive. A two-year time correction appears to have run its course, and earnings growth has revived over the past two quarters. Near-term moves are difficult to predict, but much of the risk looks priced in.The Nifty 50 has risen 10 percent over the past month, helped by the US midterm election results and softer oil prices. Yet, it remains 4 percent lower year-on-year and trades at 17 times forward earnings, below its long-term average.Fundamentals have held up well. Credit demand is improving, tax collections are buoyant, exports are stable despite headwinds, and consumer demand is strong in segments such as autos.About 80 percent of companies have reported their Q2 FY27 results so far. Their revenue and EBITDA have each grown 21 percent, while profit after tax has risen 20 percent. Index earnings are projected to grow about 18 percent in FY27 and 14 percent in FY28.Markets ultimately follow earnings. Resilient earnings should limit the downside despite the West Asia crisis, higher global yields and a weak monsoon. Over the next year, we expect above-average returns as earnings compound and the FII-led de-rating begins to reverse.Will the economy stay resilient in Samvat 2083?Yes. The domestic economy continues to show strength on several fronts. Bank credit growth reached 19.4 percent in the first half of September, with broad-based growth across industry, services and retail.Consumption remains healthy, with demand holding up in segments such as autos, while buoyant tax collections support fiscal stability. In its October 2026 policy review, the Reserve Bank of India raised its FY27 real GDP growth forecast to 7.1 percent.The main risks are global rather than domestic, chiefly crude oil prices and rising global yields. As a large oil importer, India benefits disproportionately from lower energy costs. Any sustained easing in oil prices would therefore be encouraging.Will the earnings recovery continue after H1 FY27?We expect it to continue. Based on results reported so far, adjusted profit for H1 FY27 is up about 20 percent on revenue growth of 22 percent. Profit growth excluding commodities is also 20 percent. Financial services lead with profit growth of 23.8 percent, but the recovery is fairly broad-based.Recent quarterly results show about 80 basis points of margin compression due to commodity price inflation. Much of that impact is probably already reflected in the numbers, and markets may view near-term margin volatility as temporary.We are focusing on companies with pricing power, efficient operations and strong balance sheets, which are better placed to protect profitability.What are your top three sector picks for Samvat 2083?Our preferred sectors are financials, consumer services and healthcare.Financials offer the clearest earnings visibility, supported by credit growth of about 19 percent and sector earnings growth of nearly 24 percent in H1 FY27.Consumer services should benefit from resilient domestic demand and the continuing structural shift towards digital and discretionary spending.Healthcare combines defensive earnings with structural growth and relative insulation from imported cost pressures. It offers balance in a portfolio exposed to global volatility.Is India trading near the lower end of its historical valuation range while US equities approach the upper end?India is closer to the lower end of its valuation range. It trades below its long-term average, and its premium to emerging markets has narrowed sharply. FTSE India now trades at a price-to-earnings premium of 35 percent to the emerging markets index, compared with 97 percent in September 2024.In the US, valuations remain stretched in AI-linked stocks rather than across the market as a whole.Has the case for FII-friendly tax reform weakened?That is ultimately a policy decision, and our market outlook does not depend on it. A tax cut alone may not reverse foreign outflows, as taxation is only one of several factors behind them.We believe markets can perform irrespective of the tax outcome, given compelling valuations and healthy earnings growth.Will FIIs return in Samvat 2083? What could trigger their return?A return is plausible, though the timing is difficult to predict. Foreign portfolio investors have withdrawn a record Rs 3 lakh crore from Indian equities in calendar 2026, nearly double the Rs 1.66 lakh crore withdrawn in 2025. High relative valuations, limited AI exposure and India’s vulnerability to oil and currency pressures have driven these outflows.Over the past five years, FIIs have withdrawn about Rs 5 lakh crore, while domestic investors have invested around Rs 23 lakh crore. This underlines the far greater scale, stability and predictability of domestic flows.Cheaper valuations are necessary but not sufficient. Foreign flows need a macroeconomic trigger, most likely lower crude prices and US yields, or an unwinding of the global AI trade. As these factors converge, we expect foreign investors to reassess India more favourably.That said, the market need not wait for them. With domestic participation this deep, Indian equities can advance irrespective of FII flows.Is it time to accumulate IT stocks?We remain marginally underweight, as it is still unclear whether AI represents a structural disruption or a cyclical slowdown for the sector.Valuations are cheaper and a weaker rupee cushions margins, but underlying growth remains weak. AI-led disruption appears to be moving faster than expected. Competition now includes GenAI-native firms, global capability centres and, in some cases, hyperscalers.We would accumulate IT stocks only selectively and in stages.Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

Sunil Shankar Matkar

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