Several factors are shaping the outlook for the market, including the potential upside from the Goods and Services Tax (GST), ongoing US-India trade talks, and expectations for Nifty earnings growth.
GST and Earnings Growth
Harsha Upadhyaya of Kotak AMC believes that the structural benefits of GST will drive earnings growth, projecting a potential 14% rise in Nifty earnings per share (EPS) by fiscal year 2027. The market has been moving in a range-bound manner, and the impact of policy changes implemented by the central government is expected to become visible in the next two to three quarters. While there aren't many obvious negatives in the markets, a significant trigger may be absent until earnings reach a double-digit growth rate. Valuations are not cheap enough to offset any earnings-related pessimism, so the market needs either earnings support or strong liquidity, neither of which is currently present.
US-India Trade Talks
Trade negotiations between the United States and India have resumed, with both sides expressing a "positive and forward-looking" tone. These discussions aim to reset relations after recent tariff escalations and disagreements over Russian energy purchases. In August 2025, the U.S. imposed a 50% import tariff on Indian goods, doubling the previous 25% rate, a move intended to counter India's tariffs and trade barriers, and to penalize New Delhi for its continued purchase of Russian oil. India has described the latest trade talks with the U.S. as "positive," with both sides looking to hash out a mutually beneficial trade agreement.
Chief Economic Advisor (CEA) V Anantha Nageswaran anticipates that the tariff dispute between India and the United States could be resolved by the end of November, with a reduction in tariffs expected. Nageswaran believes the penal tariffs imposed by the previous administration will be withdrawn soon, with a 15% tariff rate being considered. Successful trade negotiations could reduce tariff pressures and stabilize bilateral economic ties. However, disagreements over Russian oil purchases and market access remain key points of contention. Failure to resolve these issues could lead to further trade disruptions and export declines.
Nifty Earnings Growth Outlook
Despite global uncertainties, India's equity markets have shown resilience. In the first quarter of fiscal year 2026, Nifty earnings grew by about 8% year-on-year. While this growth rate is considered somewhat slow, mid-caps have shown slightly better earnings growth compared to large-caps. Small-cap earnings growth has declined for the third consecutive quarter. However, expectations are that the next few quarters will see slightly better earnings growth rates, with low double-digit earnings growth expected for the full fiscal year 2026. Margins are expected to remain stable, but with limited upside due to weak volume growth.
Investment Strategy
Given the current market conditions, a domestic orientation is favored in terms of business choices. Domestic businesses are considered more resilient compared to global-facing or export-oriented businesses. Sectors like cement, telecom, and power are preferred due to their resilience and limited global exposure. Financial services remain a key area for investment, with long-term growth potential due to low penetration levels. A diversified portfolio with a slight tilt towards large-cap funds is recommended. For lumpsum investments, large-cap funds may be less risky, while staggered investments are advised for mid and small-caps. Manufacturing is suggested as a promising theme for investment over the next five to seven years.
Overall, Harsha Upadhyaya expects a resolution in India-US trade to revive FII inflows and continues to prefer domestic sectors, with selective bets on chemicals, consumption and financials. While the market faces challenges such as global cues and valuation concerns, there is optimism that policy changes and improving earnings will provide support.
