Indian markets are at a potential turning point after two years of correction, according to Ajay Khandelwal of Motilal Oswal AMC. With foreign investment flows recovering to $2.5 billion since mid-June and corporate earnings projected to grow at 15% CAGR, the outlook for the coming year is improving. Investors are keeping a close watch on margin pressures and the liquidity impact of upcoming IPOs.
Indian equity markets appear to be at a significant turning point following nearly two years of price and time corrections, according to market insights from Ajay Khandelwal, head of equities at Motilal Oswal Asset Management Company. The outlook for the next six to 12 months is shaped by a stabilizing macroeconomic environment, which is encouraging a more positive sentiment among investors.
One of the primary drivers behind this view is the recovery in foreign institutional investor (FII) interest. After months of net selling, foreign investors have returned to the Indian market, injecting approximately $2.5 billion since June 16, 2026. This shift followed a reduction in geopolitical tensions in West Asia and a cooling of global AI-led trading, which had previously attracted capital away from emerging markets like India.
Corporate earnings remain a critical focus for market performance. Estimates for the Nifty and Motilal Oswal financial services universe project a compound annual growth rate (CAGR) of 15% from the 2026 fiscal year through 2028. While early data from the first quarter of fiscal year 2027 shows that companies in sectors like banking, automobiles, and capital goods are performing well, there is an expectation of potential margin pressure in the short term. The ability of companies to manage costs will be a key factor in determining whether this earnings growth can be sustained.
Motilal Oswal maintains a preference for several sectors, including diversified financials, automobiles, new-age technology platforms, manufacturing, and consumer discretionary goods. The firm suggests that in this environment, success may rely on a bottom-up approach, where investors select specific stocks rather than relying on broad market trends.
Despite the positive outlook, the market faces specific risks that investors should monitor. A robust pipeline of large IPOs and capital-raising activities is expected in the coming months. The market's ability to absorb this new supply without disrupting liquidity in the secondary market will be a crucial measure of its resilience. Additionally, volatility in global energy and crude oil prices remains a factor that could influence macroeconomic stability and corporate margins.
The next steps for investors will involve tracking how corporate earnings unfold in the coming quarters and whether the flow of foreign capital remains consistent. The impact of the upcoming supply of new shares in the primary market will also serve as a vital indicator of market depth and investor appetite.