Indian Market To Stabilise From April-June As Earnings Outlook Improves, Says Emkay

The current fall in India's equity markets is expected to stabilise from the June quarter onwards, with earnings outlook improving and the FPI selling abating by then, said Emkay Research in a report.

The brokerage has kept its Nifty target for 2025 unchanged at 25,000 and it expects small and midcaps to outperform.

A reversal from sharp consumption slowdown by second half is one of the factors aiding market recovery, according to Emkay. This reversal is seen given IT-led turnaround in jobs, relief from the unsecured lending squeeze— owing to improving asset quality and possible regulatory easing— and cash transfers and the shift of state government spending toward revenue expenditure.

Another factor is the overall GDP tracking supernormal growth in capex. The central government has a few levers to crank it up further, while states are struggling to keep up, as they step up welfare spending, the brokerage said. Corporate capex may see a minor uptick, but it is not big enough to move the needle, it said.

Emkay sees FPI selling abating from June quarter, as the DXY rally may be petering out after the Trump inauguration. This is because the brokerage sees minimal risk of a full-blown trade war.

"Moreover, India’s earnings downgrade cycle should be done by then, and the froth in valuations has also subsided," it said, adding that it doesn't see aggressive FPI buying returning, though. However, the ongoing quarter could see extreme volatility and spells of intense selling until the dust settles around the geopolitical uncertainty, it noted.

The brokerage has a contrarian approach on sector picks as it has downgraded technology to 'neutral' on valuations and upgraded consumer discretionary to 'overweight' on the expected turnaround.

"Staples joins Financials in our basket of structurally UW sectors," the brokerage said. "We are also OW on Healthcare and Real Estate."

The brokerage likes Lupin as the stock's 71% rise in the last year has pushed valuations to 36 times P/E (FY25), but the scrip is set to deliver more than 40% EPS till FY26. Moreover, consensus is trailing the brokerage on FY26 EPS by 17% and it expects the upgrade cycle to continue. ROEs are rising to 19% for FY27, which should support the premium valuation sustainably, it said.

For Zomato, it sees digital adoption as a long-term theme. Emkay noted the stock is sitting on strong one-year returns (113%) but "we see continued long term compounding," it said. "We see strong growth in both quick commerce and food delivery, and the valuation at 9 times EV/Rev (FY26) is not outrageous."

Tata Motors' JLR improvement continues along expected lines, India's CV space is also seen recovering (albeit gradually, amid gradual public capex uptick), further accompanied by better profitability, while PV outlook is soft amid growth concerns and rising EV competition, said the brokerage. Tata Motors' is the cheapest auto OEM despite strong balance sheet improvement over the past few years," it said.

Emkay sees IndusInd Bank as attractive at 1.2 times price to book value. The microfinance stress is in the price, even though the bank may need to make provisions for another one-two quarters, the brokerage said. "The other positives are overlooked, mainly the progress that is made in improving the deposit franchise." Improved system liquidity and any easing of lending regulations by the RBI would be strong catalysts, it noted.

Escorts is well-positioned for growth, with a potential tractor upcycle driven by an optimistic agricultural outlook, Emkay said. Product expansion, channel development, capacity enhancement, and increased sourcing from Kubota should bolster domestic and export growth, it said adding that the stocks has corrected 24% from the peak.

While Paytm has almost tripled from its lows, its EV/Rev at 7.5 times (FY25) is well-supported by strong growth potential and a large addressable market. "We see momentum across both payments and financial services, with a sharp improvement in profitability, it said and added that cash/market cap at 18% is an additional comfort.

StoveKraft is going to significantly outperform industry growth by leveraging cost leadership, advanced manufacturing, and strategic capex, Emkay said. This will be coupled with 290 bps Ebitda margin improvement to 12.5%.

It also likes Metropolis Healthcare, given its high-quality business with supernormal return ratios. "With the aggressive network expansion set to conclude by FY25, we expect improved margins and a stable 12-13% revenue CAGR over the next three years," it said. "The expensive valuations is supported by a large addressable market, easing up of competitive intensity and superlative cash flow generation. 

For Quess Corp, the brokerage expects a revival in hiring in CY25, led by a turnaround in IT. "Company has scaled its manufacturing segment to over 60,000 associates, making it the third-largest vertical," it said.