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In its latest India Strategy report, the domestic brokerage said the market has been range-bound below its peak levels, but there was significant divergence in sector and stock performance beneath the surface. Sharp sectoral rotation toward segments with a higher representation of mid and small-caps helped SMIDs outperform, cushioning the impact of a sharper drawdown in large-caps, which limited the broader weakness in Indian indices, it said. Also read | Sensex crossed 85K for first time 2 years ago, now down 10K points from milestone. What can trigger the next bull run? Motilal Oswal highlights sectoral rotation Motilal Oswal added that several emerging sectors, particularly in the SMID universe, delivered a strong outperformance, while an ongoing rotation away from established large-caps led to a significant underperformance across several traditional sectors and stocks. Defence (+19%), metals (+14%) and PSU banks (+10%) remained the key outperformers, while technology (-18%), consumer (-17%), media (-15%) and real estate (-12%) were the key laggards over the past two years, according to the domestic brokerage. Valuations well below 2024 highs The ongoing market consolidation, along with the continued earnings recovery from FY25 lows, has led to a sustained cooldown in valuations from the highs seen in 2024, MOFSL said. It noted that large-caps and mid-caps saw the steepest valuation corrections of 29% and 27% from their highs, respectively, whereas small-caps corrected 4% from the peak on a 12-month forward P/E basis. Most sectors are now trading significantly below their September 2024 peak valuations, the domestic brokerage highlighted. FII outflows vs DII inflows The past two years have witnessed record FII outflows and DII inflows. Strong retail participation, supported by steadily rising monthly SIP contributions of over Rs 300 billion a month, provided a cushion against the relentless FII selling, Motilal Oswal said. Surprisingly, the sharp FII outflows of $56 billion over the past 24 months effectively offset the cumulative FII inflows of the previous eight years, leading to near-nil cumulative FII investment in the past decade, it noted. In contrast, DIIs pumped in a record $177 billion in Indian equities over the past 24 months, 23% higher than the cumulative DII inflows over the preceding eight years, the domestic brokerage highlighted. IPO boom on Dalal Street Meanwhile, India’s primary market has been buoyant in the past two years despite a largely flat secondary market, reflecting sustained investor appetite for new equity issuance and strong participation from institutional and retail investors. “The vibrant primary market has absorbed a meaningful share of available liquidity, diverting some flows away from the secondary market and contributing to its subdued performance amid a prolonged phase of consolidation. This divergence underscores the resilience of India’s equity ecosystem, where strong capital formation and fundraising activity have continued even as listed equities have remained range-bound,” MOFSL said. The domestic brokerage also feels that the ongoing global rate-hike cycle is likely to remain shallow in India, as broad-based inflationary pressure has yet to emerge. Also read | Will RBI announce steep rate hikes? Nomura sees up to 50 bps increase by Dec, dismisses 125 bps hike fears Strength beneath the surface Despite ongoing geopolitical headwinds, oil price volatility and bouts of macro uncertainty, India’s economy and corporates have demonstrated resilience during the extreme volatility seen in the past two years, Motilal Oswal said. The 7.8% GDP print in Q1 FY27, robust GST collections, healthy credit growth, strong auto volumes, and the steady recovery in corporate earnings from the FY25 lows indicate underlying economic strength. A favourable policy environment, active RBI liquidity management, steady DII flows and an estimated 16% PAT CAGR for both MOFSL Universe and Nifty over FY26-28 provide further support, it added. “While a consistent rise in global yields could still trigger volatility and FII outflows, the relatively contained domestic rate cycle, strong liquidity and improving earnings provide buffers against a sharp rate-driven derating in Indian equities. Yet, the underlying strength remains largely underrepresented in the collective returns,” the domestic brokerage said. With valuations now significantly below their peaks, earnings growth remaining healthy, and the macro environment staying strong, Motilal Oswal Financial Services believes risk-reward has enhanced further for Indian equities. However, given the relatively higher earnings growth in the mid- and small-cap segments, market performance is likely to remain firmly bottom-up, it added. Motilal Oswal’s top stock picks Motilal Oswal Financial Services named Bharti Airtel, ICICI Bank, SBI, Titan, Adani Enterprises, M&M, Bharat Electronics, Zomato and Blinkit-parent Eternal, Hindalco Industries, Shriram Finance, IndiGo-parent Interglobe Aviation and Apollo Hospitals as its top Nifty 50 ideas. Among its top stock ideas outside Nifty 50 are TVS Motor Company, BSE, SBI Funds Management, GE Vernova T&D, Lenskart Solutions, Indian Hotels, Meesho, Dixon Tech, Coforge, Radico Khaitan, Kirloskar Oil Engines, RBL Bank, Physicswallah and Inventurus Knowledge Solutions. Also read | Why is market falling today? Sensex tumbles over 1,000 points, Nifty below 22,850. 6 key factors behind Rs 6 lakh crore rout Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here. (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price
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