ICICI Securities indicates Indian equities may exit their underperformance phase as valuations correct and macroeconomic pressures ease. A 9% correction in indices and stabilizing oil prices are seen as positive signals for future growth, despite potential risks from global interest rate shifts and weather patterns.
What Happened
Indian stock markets are showing signs of emerging from a prolonged period of underperformance, according to a strategy report released by ICICI Securities. The brokerage notes that several negative factors that suppressed equity prices since September 2024 are beginning to lose their impact. As these pressures subside, the firm anticipates a more favorable outlook for the Indian market, driven by stabilizing valuations and improved growth expectations.
Valuation and Profit Growth
One of the key drivers for this positive outlook is the recent correction in stock valuations. Market valuations have pulled back from a peak of approximately 24 times earnings to around 18 times. This reduction makes the market more attractive compared to previous highs. The brokerage report suggests that even without further re-rating, current valuation levels provide a strong foundation for stock prices to track a nominal profit growth rate of 14-15%. This outlook is supported by resilient corporate volume growth, an ongoing increase in capital spending by companies, and a gradual recovery in inflation from its recent lows.
Macroeconomic Tailwinds
Recent economic data has provided a supportive environment for equities. India's Gross Domestic Product (GDP) grew by 7.8% in the fourth quarter of the 2026 fiscal year, largely driven by investments in infrastructure and productive assets. Furthermore, the external sector has shown strength, with the current account moving into a surplus due to robust services exports and steady remittances. External pressures have also eased; crude oil prices have fallen below $80 per barrel, the Indian Rupee has strengthened to below 95 against the U.S. dollar, and 10-year bond yields have softened to below 6.9%. These factors collectively reduce the import burden and improve the overall macroeconomic stability.
Global Context and AI Euphoria
ICICI Securities also highlighted that the intense excitement surrounding AI infrastructure stocks is cooling. While this has caused volatility in Nasdaq-listed tech companies and Korean AI-focused firms, the firm notes that a systemic collapse remains unlikely. Strong balance sheets among major technology players and steady demand forecasts are expected to act as a buffer. In India, the moderating trend in foreign portfolio investor (FPI) outflows—which saw ₹2.73 trillion in divestments as of June 24, 2026—suggests that selling pressure is stabilizing as geopolitical concerns subside.
Risks and What To Watch Next
Despite the positive outlook, the report identifies potential risks that investors should track. The possibility of an El Niño weather event in 2026 could impact agricultural output and rural demand. Additionally, any potential interest rate hikes by the U.S. Federal Reserve later this year remain a variable that could influence global capital flows. Investors may track these macroeconomic developments, along with quarterly corporate earnings, to assess whether the profit growth estimates align with the brokerage’s expectations.