Indian equities are exhibiting signs of recovery, with Motilal Oswal maintaining a positive outlook, suggesting that the market is well-positioned to rebound from its CY2025 underperformance. The brokerage firm believes that improved earnings prospects, supportive domestic macroeconomic conditions, and a more stable geopolitical environment will drive this recovery. A potential rotation of funds from global markets into India, spurred by a cooling of exuberance in AI-related stocks abroad, could further benefit the Indian market.

Earnings Rebound on the Horizon

Motilal Oswal's analysis indicates that the prolonged period of earnings cuts is nearing an end, with companies beginning to report earnings upgrades. This improved earnings momentum is supported by various fiscal and monetary measures, contributing to better earnings revisions over the past two quarters. The brokerage forecasts a 12% to 15% earnings growth for its coverage universe in FY26 and FY27, respectively, and 15% to 16% for Nifty companies. This optimistic outlook is also supported by a low base from the previous year and the lagged impact of previous interest rate and tax cuts, which are expected to stimulate corporate profitability.

Factors Driving Market Optimism

Several factors contribute to Motilal Oswal's positive stance on the Indian stock market. These include:

• Healthy corporate earnings: The brokerage expects earnings to recover in the second half of FY25, driven by increased rural spending, a buoyant wedding season, and increased government spending. They further anticipate an earnings momentum, delivering a 16% CAGR over FY25-27E.
• Strong domestic macroeconomic conditions: Sustained foreign investor inflows, a stronger rupee, and optimism over potential rate cuts by the U.S. Federal Reserve are expected to support the Indian equity markets.
• Reasonable valuations: Valuations remain reasonable, particularly for large-cap stocks, with Nifty trading at a price-to-earnings ratio (PE ratio) of 21.3x versus a long-term average (LTA) of 20.8x.
• Resilient domestic fundamentals: The Indian stock market is expected to maintain a mildly positive and cautious outlook, bolstered by robust domestic fundamentals.

Stock Recommendations

While the specific list of 22 stocks was not available in the search results, Motilal Oswal has highlighted several companies with strong upside potential. Some of their recent top picks include:

• Astra Microwave Products: The company designs and manufactures RF and microwave systems in India and is transitioning into a full system solutions provider.
• Crompton Greaves Consumer Electricals: A prominent player in India's consumer electricals sector, with leadership in fans and residential pumps.
• Shriram Finance: Motilal Oswal has retained its Buy rating on Shriram Finance, with a target price of Rs 1,100.
• InterGlobe Aviation: Motilal Oswal retained its Buy rating on InterGlobe Aviation, with a price target of Rs 6,300.
• Aditya Birla Real Estate: Motilal Oswal initiated coverage on Aditya Birla Real Estate with a Buy rating and a target price on the stock was set at Rs 2,275 per equity share, implying an upside of over 33%.
• Ambuja Cements and Kajaria Ceramics: Motilal Oswal has picked Ambuja Cements and Kajaria Ceramics as its top investment ideas, citing sector consolidation benefits, cost synergies and strong earnings visibility, with upside potential of up to 40 per cent over the medium term.

Motilal Oswal is overweight on banking, financial services, and insurance, IT, industrials, healthcare, and real estate. The brokerage is underweight on oil and gas, cement, automobiles, and metals.

Market Performance and Outlook

The Indian equity benchmarks ended marginally lower on December 24, after a rangebound session, as trading volumes remained muted ahead of the Christmas holiday. The Nifty 50 closed at 26,142.10, while the Sensex closed above 85,500. Despite the slight dip, the overall market sentiment remains positive, with analysts anticipating continued bullish momentum in the near term. The market will remain closed on Thursday, December 25, on account of Christmas.