NIFTY50 outlook: Consolidation likely to continue; five sectors that look promising currently

Going forward, the market is expected to remain volatile in the near term, given Trump's tariff salvo and muted earnings; however, the mid-to-long-term story of the Indian market looks robust, note experts.

Shridatta Bhandwaldar, Head of Equities at Canara Robeco Asset Management Company, opines that while the recent US tariff hikes on India present a near-term headwind for select sectors like industrials, autos, chemicals, and textiles, they believe this is more of a negotiation tactic than a structural shift.

A comprehensive trade deal is likely over the next few quarters, which should help ease these pressures. In the meantime, domestic macros remain resilient, with healthy balance sheets, surplus liquidity, supportive government spending, and a third consecutive year of a good monsoon.

Earnings growth for FY25 is tracking in line with expectations at high single digits, and consensus estimates for the next two years point towards a recovery to low double-digit growth. Mid-caps continue to show the strongest earnings resilience, followed by large caps, while small caps remain a concern given stretched valuations and weaker earnings trends.

"Despite elevated valuations in parts of the market, we expect a phase of consolidation to continue until earnings momentum strengthens towards mid- to high-teens growth," the expert adds.

Echoing similar views, PGIM India Mutual Fund, in its recent report, said India’s medium- to long-term economic growth is likely to be steady and ahead of its global peers. However, in the near term there are slight growth headwinds.

The report said that the large caps are reasonably valued and preferred, while mid-caps and small caps in general are expensive in pockets.

Weak (low growth + low quality) mid-caps and small caps still have froth, and caution is advised. Strong (high growth + high quality) mid-caps and small caps may present opportunities for long-term investors.

The analysts say that they are optimistic on markets in the medium to long term, driven by strong economic growth.

"However, we may have borrowed some returns from the future. We expect polarised performance from the markets. We expect high-growth and high-quality buckets to outperform, while the low-growth/quality bucket will underperform and give away the excesses which were built in FY24," the report says.

Sectors that look promising

Bhandwaldar notes that they remain constructive on large banks, insurance, industrials, telecom, pharma, aviation, and hospitals, while staying cautious on global commodities, tier-2/3 NBFCs, and FMCG until clear signs of recovery emerge.

"Over the medium term, we see India’s structural growth story intact, with improving earnings and domestic demand setting the stage for renewed market momentum," the expert says.

PGIM India Mutual Fund's sector preferences are as below.

• Consumer Discretionary (growth revival), Healthcare (fair valuations but high growth), larger private sector lenders (reasonable valuations and growth) and Telecom (fair valuations with moderate growth).

• Underweight on Materials (low quality, weak growth) and Energy and Utility (heavily government dependent) and IT (uncertain demand environment).