Indian markets are on course, but headwinds are yet to peak out, said leading brokerage firm PL Capital, in its latest India Strategy Report. The firm has cut its base-case Nifty target to 27,381 from its earlier target of 27,867 and Nifty EPS by 0.5/2.0/1.5 for FY25/26/27, recommending selective buying on dips for long-term gains.

The report added that demand conditions remain mixed, with a steady uptick in rural demand given the low base and normal monsoons. However, rising inflation is a concern, which is “affecting demand in urban India (yet to play out fully), more so in metros and big cities, accounting for about 35 per cent of the total demand”. Per the report, “All hopes now rest on the demand surge in the festival and wedding seasons.”

Rate cut not now

PL Capital expects interest rate cut only post Budget, “as the spike in food inflation to 10.9 per cent (CPI increase to 6.2 per cent) takes it much above the RBI’s comfort level”. Investors could opt for a stock-specific approach, given the tepid demand scenario, the firm suggests in the report. Capital Goods, Infrastructure, EMS, Hospitals, Pharma, Tourism, Auto, New Energy, E-commerce, and Jewellery are good themes to play at current valuations, the report added.

The benchmark index Nifty50 is down 6 per cent since October 12, showing the impact of ₹72,000-crore FII selling amidst Donald Trump’s victory in the US Presidential elections, sustained geopolitical uncertainty, strength of the USD and softening of gold prices.

Future growth drivers

PL Capital highlights three factors that can support growth, going ahead: The results of the recent State elections in Maharashtra, Haryana, UP (by-election) and Bihar have consolidated the position of the ruling NDA, which will provide the much-needed stability and resolve to push for reforms; Trump 2.0 is likely to see some reduction in global wars, lesser geopolitical uncertainty and stable crude prices; Expected revival in government capex as Q2 capex has turned positive and H1 capex is only 37 per cent of FY25 BE.