Macquarie Capital suggests the Indian market has reached a valuation floor, signaling potential for a rebound. The brokerage upgraded multiple banking and financial stocks, projecting 18% earnings growth by FY28. While long-term large-cap valuations look attractive, analysts warn that uncertainty around US trade policies and global commodity prices remains a key risk for investors.
Indian equities appear to have moved past the most intense period of recent selling pressure. According to Macquarie Capital, the market has likely reached the lower end of its valuation range, making current large-cap valuations increasingly attractive for long-term investors. Sandeep Bhatia, Managing Director and Head of Equity India at Macquarie, notes that while foreign investor sentiment remains cautious, the domestic outlook for the upcoming quarters shows potential for positive earnings surprises.
The banking and financial services sector has been identified as a primary area for recovery. Macquarie projects that banks could see earnings growth of approximately 18% by fiscal year 2028, supported by margin expansion of around 15 basis points. As part of this optimistic view, the brokerage has upgraded several financial stocks to 'Outperform,' including Kotak Mahindra Bank, Bank of Baroda, PayTM, M&M Financial Services, LIC Housing Finance, and ICICI Prudential Life.
Beyond traditional lending, the brokerage maintains a bullish stance on India's financial market infrastructure. As household savings continue to shift into financial assets, firms like the BSE, MCX, and the National Stock Exchange of India are expected to benefit. Analysts forecast a 16% annual growth rate in combined investment and wealth revenue for the sector between fiscal years 2026 and 2030.
In the broader economy, consumer discretionary spending, particularly in the auto sector, has shown resilience during the festival season. Industry leaders such as Maruti Suzuki, Hyundai India, and Mahindra & Mahindra are viewed as companies that may deliver strong performance amid steady demand. The power and energy sector is also benefiting from robust industrial manufacturing and rising electricity consumption.
Despite the positive outlook for these sectors, investors should remain aware of potential challenges. The report highlights that the path ahead is not entirely clear. Uncertainty surrounding potential US tariff policies and global trade tensions remains a significant variable that could impact market sentiment. Additionally, volatility in oil and commodity prices continues to pose risks to domestic margins and inflation. The Information Technology sector also faces scrutiny; despite attractive valuations, the brokerage remains cautious until there is greater clarity on how artificial intelligence integration will affect Western markets and company profits.
For investors, the key monitorables moving forward will be how banks manage liquidity and asset quality in the coming quarters. While the brokerage sees a floor in valuations, the final performance will depend on the stability of global macro factors and the actual execution of earnings growth targets in the banking and auto segments.