SENSEX, NIFTY50 outlook: Is the market’s consolidation phase reaching its logical conclusion?

Of late, many leading analysts have turned bullish on Indian equities, citing recovery in corporate earnings, favourable macros, especially retail inflation, and measures such as GST rate cut reduction and RBI rate cuts.

In its latest note dated November 7, 2025, analysts at HSBC said that after underperforming Asia by 30% in the past 12 months, they think the worst is over for Indian equities. Recent flow data hints at growing interest among foreign investors, they note.

The investment firm noted that things have not turned entirely favourable for the Indian stocks; however, there are positive signs.

As regards FIIs, analysts said they expect Indian equities to see incremental foreign inflows. "India is now the biggest underweight in GEM portfolios, and only a quarter of the funds we track are overweight India. India offers a hedge and diversification to those who feel uncomfortable with the ongoing AI rally. India is likely to be an outsized beneficiary of any additional money coming into the EM region," they said.

On valuations, HSBC noted that concerns around elevated multiples have kept many investors on the sidelines, "but we argue valuations now are not as much of a headwind as they were a year ago. They have come off after the recent underperformance, both against India’s own history and also relative to other major Asian peers. In fact, we think India now offers value vs Chinese equities," they add.

HSBC said that corporate earnings have bottomed in India, and it expects to see a broad-based recovery in 2026.

Banks were a massive drag on growth this year, but as deposits are rolled over, margins will expand in the coming quarters. The technology sector is also likely to experience increasing demand. Consumer names, including autos, are poised to benefit from GST reductions, lower inflation, and lower interest rates. However, the sustainability of demand influenced by tax cuts remains to be seen.

It added that a potential reduction in US tariffs would likely be a big boost.

"However, risks to our upgrade include a delay to the earnings recovery, further diversion of global flows into the AI theme, and less domestic appetite for equities," HSBC added.

"We are overweight Indian equities from the Asia perspective, with an end-2026 index target for SENSEX at 94,000," analysts at HSBC said.

Echoing similar views, Rahul Singh, CIO-Equities, Tata Asset Management, has said that the period of consolidation is reaching its logical conclusion.

The fund manager pointed out three reasons why he believes India could be nearing the end of this sideways movement or correction phase.

Corporate earnings

Singh notes that for the last two quarters, after a long time, "we are not seeing any cuts to the estimates of profits for the NIFTY50. In fact, there have been marginal upgrades in earnings this quarter. What we are seeing now is that after two years of very low profit growth for the NIFTY50, at around 5–6% CAGR between fiscal years 25 and 26, we could be entering a period in fiscal year 27 when companies’ profits could grow by 15–20%," the CIO opined.

Market valuations

The expert notes that the NIFTY50's forward price-to-earnings ratio has come down from 22.5 times in July last year to roughly 21 times now, making valuations slightly more reasonable in terms of return outlook, especially when considered alongside the improving profit growth.

Profit growth is being driven by various factors, including banking earnings, credit growth, and a low base of consumption this year, which could make the next year look better.

Additionally, GST cuts, monetary policy impact, and income tax reductions have started to positively influence consumption in the current quarter and going forward.

Global flows

The third and most important reason is global flows. Over the last six to nine months, these flows have been dominated by the artificial intelligence wave, with India receiving very little share. Most of the flows outside the US have gone to other emerging markets, such as China, Korea, and Taiwan, which are more exposed to this theme.

Now, these markets are looking fully valued, which increases the likelihood of some balance returning to flows, especially as India’s growth revives.

“India’s valuation premium compared to other emerging markets, which was almost 80–90% before 2024, has now come down to 50%, which is the average of the last ten years. This could represent a good level from a global perspective," Singh added.