Indian Market Outlook
From the CIO’s Desk- Mr. Mohit Talwar, CIO, InvesTek
Mohit Talwar is the Chief Investment Officer at InvesTek, where he leads strategic initiatives to accelerate business growth, foster innovation, and strengthen client relationships. He drives InvesTek’s investment strategy and shapes its growth priorities. With over 18 years of experience in the financial world, he has seen cycles, crises, and recoveries, bringing deep insight into capital market dynamics. Known for his results-driven approach, he has been pivotal in enhancing InvesTek’s market positioning and operational efficiency. His approach to growth blends strategic foresight with operational excellence, driving sustainable value creation for clients and stakeholders.
India Market Outlook: Navigating All-Time Highs (Oct 2025)
The Indian equity benchmarks, Nifty and Sensex, are currently hovering near all-time highs as of October 23, 2025, driven by strong domestic liquidity, expectations of robust earnings growth, and a bright macroeconomic outlook. While this signals confidence in India’s long-term growth story, it also calls for a cautious and strategic approach from investors.
Earnings Outlook
Next 6 Months (H2 FY26): The near-term outlook remains cautiously optimistic. Earnings growth is likely to pick up from the third quarter of FY26, supported by potential rate cuts and government measures to boost consumption. Domestic liquidity should stay strong, with around ₹50,000 crore in monthly inflows from SIPs, institutions, and HNIs providing steady market support. However, elevated valuations and global uncertainties, particularly around U.S. trade tensions and monetary policy, could act as headwinds, keeping near-term returns moderate in the range of 8–10% from current levels.
FY27 & Next 3-5 years: The long-term outlook remains strongly bullish, driven by India’s structural growth story. Markets could reach new highs in the latter half of FY26, supported by steady liquidity, earnings growth, FII inflows, and easing global risks. With strong demographics, policy reforms, and a focus on manufacturing and digitalization, India is poised to stay the fastest-growing major economy. While valuations and global uncertainty may temper returns and add volatility, long-term gains of 12–14% remain attractive for investors.
Key Data Points and Estimates
Factors Impacting
• IPOs 2025-26 (Primary Market): The primary market has seen a strong surge in fundraising, with IPOs raising nearly ₹1.7 lakh crore between October 2024 and September 2025, almost double the previous year. In 2025, total fundraising is set to cross the ₹1 lakh crore mark for only the third time in history, supported by robust domestic liquidity and strong demand for new listings. The pipeline remains healthy, with over 150 IPOs worth nearly ₹3 lakh crore awaiting approval, including high-profile names such as OYO, Jio, Groww, NSE, and LG Electronics.
• Secondary Market: Equity Fund Flow: Domestic Institutional Investors and retail investors, aided by record SIP inflows of around ₹30,000 crore a month, have cushioned markets against global volatility. Though inflows have moderated slightly, domestic liquidity remains strong. After ₹1.02 lakh crore of FPI outflows during July to September 2025, foreign investors turned marginal buyers in October, reflecting improving sentiment. Liquidity is expected to stay robust, supported by favourable macros and retail participation, though global risks may cap flows.
• Fiscal Prudence: The government maintains a strong commitment to fiscal prudence, with the Fiscal Deficit target for FY26 set at 4.4% of GDP (down from 4.8% in FY25). This trajectory of fiscal consolidation is crucial. Fiscal prudence helps in a big way by:
i. Lowering Inflationary Pressure: Reduced government borrowing curbs excess money supply, helping to keep inflation in check.
ii. Controlling Bond Yields: A lower deficit reduces the government’s borrowing requirement, which can lead to lower bond yields, reducing the cost of capital for corporations.
iii. Attracting Foreign Investment: It signals responsible macroeconomic management, increasing the confidence of global credit rating agencies and FPIs.
• US Market Correction: The US stock market, with valuations also near highs, poses a significant global risk. If the US market undergoes a significant correction, the Indian market will almost certainly feel an impact.
i. FII Outflows: A global ‘risk-off’ sentiment would trigger FIIs to pull capital from emerging markets like India to shift to safer assets, leading to selling pressure and a price correction in Indian equities.
ii. Export Impact: A US slowdown or recession would hurt India’s IT and pharmaceutical sectors, which rely heavily on US demand, impacting their earnings growth.
However, the impact might be less severe than in the past due to India’s strong domestic consumption story and the counterbalancing force of DII/SIP flows. India’s market resilience has increased, but it is not fully decoupled from global sentiment.
Portfolio Realignment for Indian Investors
With the market at reasonably high valuations, Indian investors should consider the following realignments:
• Focus on Maintaining Asset Allocation in your Portfolio: Maintaining asset allocation is most critical when market valuations are high. It can help investors maintain a strong portfolio risk management framework, so stick to the same.
• Rebalance & Book Partial Profits: If the equity allocation has significantly exceeded the target (e.g., 70% equity in a 60:40 portfolio), book partial profits to rebalance back to the target asset allocation or simply book the profits and park them in arbitrage funds.
• Shift Focus to Value/Cyclicals: After a strong run in many growth stocks, investors should look for opportunities in sectors with potential earnings recovery and more reasonable valuations, such as select financials and consumption-linked stocks, which are expected to drive the FY27 earnings surge.
• SIP & STP Strategy in Quality: Invest through Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs) rather than making large lump-sum investments. This strategy averages the cost and mitigates the risk of buying at the peak.
• Avoid Over-Speculation in IPOs/SMEs: The IPO frenzy suggests liquidity is high. While quality IPOs are attractive, investors should be highly selective, avoiding over-speculation in lower-quality or overpriced SME/mainboard issues.
• Increase Debt/Hybrid /Multi Asset Allocation Portfolio: Given the expectation of a rate-cut cycle in the medium term, increasing exposure to debt mutual funds (especially medium-to-long duration funds or target maturity funds) can be strategically beneficial to capture potential capital appreciation from falling bond yields, providing a valuable buffer against equity market volatility, while hybrid and multi-asset allocation can maintain a balanced risk management check on the portfolio.