With India’s domestic growth trajectory holding strong despite global headwinds, Chadawar outlines why the Nifty 50 could scale up to 27,600 in a bull case scenario by March 2026.
He shares insights on macro trends, policy moves, sector rotations, and why largecap, domestic-facing sectors are poised to lead the next leg of the market rally.
Plus, his take on interest rates, rural revival, institutional flows, and what retail investors should do amid rising FOMO. Edited Excerpts –
Q) Thanks for taking the time out. After a stable May, the market turned volatile in June. 1H2025 has been robust with Nifty closing in the red in just 2 out of the last 5 months; however, we still underperformed EM peers in 2025. How do you see markets in the medium-to-long term?
A) Despite external risks, India’s domestic growth trajectory remains intact, with key macroeconomic factors supporting a stronger FY26 versus FY25.
Both the RBI and the government are providing support to the Indian economy through policy measures such as a 50 basis point CRR cut in December 2024, 100 basis points of rate cuts so far, improved bank liquidity, an additional 100 basis points CRR cut from September 2025 onwards, dividends from the RBI, a consumption boost provided in the budget, and an uptick in government Capex spending.
Furthermore, macroeconomic uncertainty has reduced significantly over the last month. Most significant events are now behind us, with the majority of negative concerns regarding the domestic economy and earnings already factored into the price.
Moving forward, the market will closely monitor global developments around: 1) the U.S. government’s policies, 2) the reciprocal tax, 3) further rate cuts by the U.S. Fed in 2025 (based on growth and inflation dynamics), and 4) the direction of currency and oil prices in the remaining part of 2025.
These developments will continue to challenge market direction and valuations in the near term. Hence, we believe the market needs to navigate through another couple of months smoothly before entering into a concrete growth direction.
As a result, we expect near-term consolidation in the market, with breadth remaining narrow in the immediate term. Our focus will remain on style and sector rotation, along with earnings recovery.
Going forward, we expect the Indian market to be divided between domestic-facing and export-facing sectors, but the risk-reward balance would favor domestic-facing sectors due to the minimal to low impact of the reciprocal tax.
Export-oriented sectors will be in a wait-and-watch mode, and the impact and developments related to the reciprocal tax will be closely tracked.
Based on the current development, we present 3 scenarios for the Nifty 50 by Mar’26:
Bull Case: Nifty target of 27,600 by Mar’26, valued at 21x, assuming a Goldilocks scenario and private capex boost
Base Case: Nifty target of 26,300 by Mar’26, valued at 20x on Mar’27 earnings (Recently, we have upgraded our Base case multiple to 20x from 19x earlier, supported by the favourable addition of high PE stocks in the index, in which Jio Financial and Eternal have replaced Britannia and BPCL).
Bear Case: Nifty target of 22,300 by Mar’26, valued at 17x, assuming policy shifts, inflation challenges, and recession risks.
Q) What is your take on the outcome of the MPC meeting in June? What is the trajectory you foresee for rates in 2025?
A) It was a double delight from the RBI in Jun’25 MPC. The RBI’s 50bps rate cut surprised markets, which expected a third straight 25bps cut. The regulator is in favour of front-loading rate cuts to support growth.
However, it has now changed its stance from Accommodative to Neutral, providing limited scope for further rate cuts. We believe any policy action on rates will be largely data-driven going forward.
The RBI also surprised with a CRR cut of 100bps in four tranches, effective from Sep’25, which will provide more liquidity in the system, supporting credit growth for banks, (especially in H2FY26, which is characterised by the festive season).
In BFSI, the pick-up in credit growth, which was subdued as banks exited FY25, remains pivotal.
Hopes are pinned on a recovery in H2FY26, supported by falling interest rates, consumption boost from the tax rate cut, expectations of a strong monsoon, and potential recovery in demand in the unsecured segments as stress subsides.
Q) Which themes look attractive to you for the next 6-12 months amid trade war fears, a strong dollar and a possible scenario of falling interest rates?
A) The valuations appear attractive for the Largecaps vs. the broader market, where the margin of safety is still missing.
Against this backdrop, we believe that the Largecap stocks, ‘quality’ stocks, monopolies, market leaders in their respective domains, and domestically-focused sectors may outperform the market in the near term.
Based on the current developments, we 1) Continue to like and overweight Largecap private banks, telecom, consumption, hospitals, and interest-rate proxies,
2) upgrading certain plays in retail consumption and FMCG sectors based on the recovery expectations in FY26, 3) prefer certain capex-oriented plays that look attractive in light of the recent price correction and reasonable growth visibility in the domestic market in FY26.
Q) The IMD has predicted a normal monsoon in 2025 – do you see this supporting consumption stocks/auto stocks?
A)Rural as a theme remains watchful for upcoming quarters based on the normal monsoon expectations, subdued inflation, and the pick-up in government spending. This theme has seen a long period of underperformance and may revive in FY26. It would also support entry-level 2-wheeler demand, which has lagged since Covid-19.
Q) How do you see flows – FIIs have recently turned positive on Indian markets, while DIIs have supported the rally. Do you see a reversal of flows into Indian markets?
A) FY26 is expected to present a more constructive environment for foreign flows compared to FY25, driven by improving domestic fundamentals in terms of earnings expectations and proactive policy measures.
Most of the earnings-related concerns are factored in FY25, and here onwards, the FY26 earnings prospects have improved significantly.
This will be supported by the RBI’s liquidity support, including a CRR cut, the interest rate cut of 100 bps, which should support a recovery in corporate earnings in FY26, and a consumption-oriented Union Budget.
That said, global macro risks continue to warrant close attention. While India remains relatively better placed among emerging markets, foreign investors are likely to take a calibrated approach, balancing optimism around India’s structural story with caution around global headwinds.
Q) Is there any theme or sector where one should avoid fresh investments in the current environment?
A) We continue to maintain underweight in export-oriented themes with a wait-and-watch approach and will closely monitor emerging developments related to the tariffs.
We continue to maintain our underweight stance in the IT sector, as we foresee a slowdown in overall IT spending in the US market and a probable delay in discretionary spending, which may pose a downgrade risk in the upcoming quarters. Guidance and commentary remain critical for the sector going forward.
Q) What is your call on the small & midcap space? Are they still trading at expensive valuations, and are large caps still a better play?
A) The sector and style rotation will play a meaningful role in alpha generation going forward. The valuations appear attractive for the Largecaps vs. the broader market, where the margin of safety is still missing.
However, certain pockets in the Mid and Smallcap universe are looking attractive after the correction and the expectation of the earnings recovery in FY26.
In the near term, it will be a bottom-up stock picking market, and once we progress more towards FY26, more and more sectors are likely to join the rally based on the revival expectation of the domestic economic momentum.
Against this backdrop, the broader market may deliver double-digit returns in the next one year.
Q) Many investors who stayed on the sidelines at the beginning of 2025 and are now experiencing FOMO as markets have seen a significant rally, but it is still down by about 5% from the highs. Should they adopt staggered buying, keep cash or do a lump sum investment?
A) We suggest staggered buying for the remaining part of FY26 with a ‘Buy on Dips’ strategy as the prospects for the domestic economy are slowly and gradually improving.
Q) COVID cases are rising. Can this fuel hospital stocks, or should investors keep an eye on that theme? What are your views?
A) We continue to like hospitals as a structural theme for the next couple of years, led by brownfield expansions, increasing insurance penetration, and the pick-up in medical tourism. All these factors are expected to remain sustainable over the next two to three years and will significantly drive the sector’s growth.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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