Relief Rally Underway? Nifty Unlikely To Break Below 22,000 Despite Middle East Risks, Says Emkay's Sonthalia

Indian equity market has limited reasons to turn bearish apart from the tensions in the Middle East, according to Manish Sonthalia, Director and Chief Investment Officer, Emkay Investment Managers Limited, who says Nifty is unlikely to break below 22,000 decisively.

Sonthalia said the market had priced in concerns over the Iran-related hostilities and the wider Middle East crisis, but the damage to earnings may be less than feared if the situation remains short-lived.

"We are mostly through the earnings season," Sonthalia told NDTV Profit. "Even now, looking out into the first quarter of FY27, as many as 44-45% of Nifty 500 companies are still alluding to the fact that FY27 earnings growth is going to be north of 25%."

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The comments come as market assesses whether the current rebound is a relief rally after the recent pressure from geopolitical risks. Sonthalia said some of the earnings downgrades built into market expectations may need to be revised.

At one point, the market had factored in a possible 10-12% hit to FY27 earnings because of the Middle East crisis, he said. If the crisis remains contained and settlement efforts begin, earnings growth estimates could move higher to about 12-13%, according to Sonthalia.

"The whole degradation of the earnings for FY27, which at one point in time was built to around 10-12%, may have some upward legs to revision on the upside," he said.

Sonthalia said the current market move can be seen as a relief rally, helped by lower valuations in parts of the market. "Given the negativity in the system, it is a pullback," he said. "Some of the sectors were definitely falling way below fundamental valuations, and that is catching up."

Sonthalia said "semblance of sanity" is returning to global markets, particularly in how investors are assessing the Middle East situation. Even as sentiment stabilises, he cautioned that the upside for equities remains capped in the absence of stronger underlying fundamentals.

He said a decisive breakout above the 25,000 mark is unlikely in the near term unless supported by a tangible improvement in corporate earnings. "The next leg of the rally cannot be driven by sentiment alone," he indicated, stressing that earnings growth will need to provide fresh impetus for markets to sustain higher levels.

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