Axis Asset Management expects a turnaround for Indian equities, citing steady economic expansion despite a 12% decline in the Nifty 50 this year. The firm views record foreign outflows as a global asset rotation issue rather than a lack of domestic confidence and remains positive on private banks and manufacturing.
Indian stock markets are showing signs of a potential recovery as the financial year progresses, according to insights from Axis Asset Management. The Nifty 50 experienced a 12% decline in 2026, marking a notable departure from its ten-year streak of consistent annual gains. This period has been characterized by record foreign institutional investor outflows totaling $31.3 billion, creating a challenging landscape for domestic investors.
The Shift in Market Outlook
Despite the departure of significant foreign capital, Axis Asset Management maintains a constructive outlook. The firm notes that these outflows are largely driven by global investors reallocating capital toward AI-related investments and shifting bond yields, rather than a fundamental issue with India’s growth narrative. With the economy maintaining a steady expansion above 7%, the divergence between stock prices and corporate earnings has created what the firm considers a more favorable valuation mismatch for long-term investors.
Portfolio positioning remains focused on high-conviction themes, specifically electrification, domestic manufacturing, and energy. Private-sector banks and non-bank financial companies are also identified as offering compelling risk-reward profiles following recent valuation resets. Government policy continues to provide supporting factors for industrial capacity expansion, which remains a core pillar of the firm's positive thesis.
Navigating Macro Risks
While the outlook remains constructive, the market continues to face genuine pressures. Elevated crude oil prices, linked to the ongoing geopolitical conflict involving the US, Israel, and Iran, complicate the domestic macro environment. Additionally, global monetary tightening and fluctuations in international bond yields remain variables that could influence fund flows.
Investors should also consider that while valuations in some sectors have become more attractive, businesses facing disruption from e-commerce platforms or those vulnerable to technological obsolescence may face continued pressure. The domestic institutional investor base remains a critical factor, acting as a buffer against global market volatility.
The trajectory of the market in the coming months will likely depend on whether corporate earnings can maintain resilience and how effectively the economy navigates external pressures like oil prices and global rate policies. Investors may monitor these macroeconomic indicators alongside quarterly earnings reports to gauge the strength of the anticipated recovery.