Daily Voice: Nifty 14% below two-year high; Mirae CIO says much of the risk is priced in, sees stronger returns ahead

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Neelesh Surana, Chief Investment Officer at Mirae Asset Mutual Fund, expects another stable quarter for Q2FY27 earnings.

According to him, the Q1 pattern is likely to repeat, with broad-based topline growth of around 15 percent, although margins may remain under pressure. Financials, telecom and metals are expected to drive aggregate earnings, while IT and energy-intensive sectors are likely to lag, he said in an interview with Moneycontrol.

Further, he believes earnings prospects look better in the second half of the fiscal year, with sentiment also expected to improve.

Surana expects the RBI to begin a shallow rate-hiking cycle at its October meeting, with a 25-basis-point increase, while maintaining its neutral stance.

Do you still expect a further 5–7 percent correction in the Nifty 50, given that there are no clear signs of easing in overseas risks?

Equities are always difficult to forecast in the near term, but much of the risk appears priced in. The Nifty is nearly 14 percent below its two-year high, and valuations are now reasonable, with the forward PE at about 18x, 15 percent below its 10-year median.

High-frequency indicators, including Q1FY27 earnings, confirm that the economy's fundamental strength remains intact despite external shocks. Underlying demand is healthy, with strong volume growth in autos and consumer-oriented businesses, and credit demand is improving. Stable corporate earnings should limit the downside, and we expect markets to stay resilient despite headwinds from the West Asia crisis, higher global yields and a weak monsoon.

In essence, growth in both GDP and corporate earnings has proved more resilient than anticipated.

Over the next two years, returns should beat long-term averages, as much of the PE contraction stemmed from FII selling, which could reverse.

Do you see the beginning of a rate-hike cycle by the RBI in its October or December meeting, or do you expect the central bank to use other policy tools instead?

We expect the RBI to begin a shallow hiking cycle in October with a 25bp increase, while keeping its neutral stance. Cumulative hikes are likely to total 50–75bp by February 2027, aimed mainly at preventing the real policy rate from turning negative as inflation rises. Even after these hikes, the real policy rate would remain low, so a neutral stance remains appropriate.

A change in stance looks unwarranted, as inflation is largely supply-driven and growth faces two-sided risks. The weak monsoon is also weighing on growth, which argues against a steep cycle, especially with the festive season under way.

Are you bullish on the capital goods sector at current levels?

After a prolonged lull, private capex in India is beginning to recover, with green shoots evident across the board. Capacity utilisation in manufacturing stayed above 75 percent through FY26, the first time since FY12. GST rate cuts, PLI schemes, gains from rupee depreciation and a renewed push for supply-chain resilience have all lifted capex sentiment.

Even so, we are selectively positive rather than broadly bullish, because valuations are high. Order inflows remain strong, but many stocks trade 20–25 percent above their 10-year average valuations, and some have seen earnings downgrades due to margin pressure. The sector is also crowded, being among the most overweight. The better approach is to buy on dips in companies with strong order books and pricing power.

Does the healthcare sector still appear expensive despite the recent correction?

Yes, at the index level. Healthcare remains a defensive holding, but the entry point is not compelling. The sector trades about 20 percent above its five-year median, and valuations are reasonable only in pockets. Stock-specific bets in CDMOs, hospitals and domestic formulations are preferable to broad sector exposure.

Do you believe the insurance sector now presents a strong buying opportunity?

Yes, it is an attractive contrarian bet for long-term investors. The latest selloff followed IRDAI's proposal to cut distribution fee income in high-margin categories, but growth is holding up in the high teens.

What are your expectations from the September-quarter earnings season, which is set to kick off soon?

We expect another stable quarter. The Q1 pattern is likely to repeat, with broad-based topline growth of about 15 percent, though margins may stay under pressure. Financials, telecom and metals should drive aggregate earnings, while IT and energy-intensive sectors lag.

Banks should continue to do well, as strong FCNR inflows support loan growth, profitability and momentum despite the macro noise.

Despite the elevated overseas risks, do you still see a high possibility of more earnings upgrades than downgrades in the second half of the current fiscal year? If so, what factors could support these upgrades?

Earnings prospects look better in the second half, and sentiment should improve. Financials, which account for about 38 percent of corporate earnings, will be the main support, while festive demand, the GST cut and any easing in crude prices should also help.

Consumption, however, needs watching. It has picked up, aided by last year's income tax relief, GST rationalisation and state government transfers. But around 12 percent monsoon deficit, firmer food and fuel prices and an impending rate-hike cycle are straining household incomes, making the festive season the first real test. Still, consumption is unlikely to buckle. Over the medium to long term, we expect a durable upswing driven by rising wages and incomes, beyond the current policy-led re-acceleration.

Going forward, do you see West Asia tensions and El Niño-related risks as bigger concerns for Indian markets than elevated US bond yields?

Yes, West Asia and El Niño matter more for earnings. The monsoon is running at a 12 percent deficit and could be the weakest since 2009, with a strong El Niño ahead. Both feed directly into food inflation and rural demand. The West Asia conflict keeps crude prices high, pressuring inflation, the fiscal position and the rupee.

US yields matter mainly through foreign flows, whereas crude remains the biggest swing factor, as it drives both inflation and the currency.

Do you see the possibility of FII flows returning to India from the US only if the AI trade reverses?

Not necessarily. FII selling has been broad-based across emerging markets, with the exception of Brazil, rather than specific to India. About US$190 billion has left emerging Asia in 2026, and AI-heavy markets such as Korea and Taiwan have seen larger outflows than India.

FII equity outflows stand at US$28 billion in CY26 so far, while DII inflows have remained strong at US$67.8 billion over the same period. This structural shift towards domestic investors has helped reduce volatility. FII positioning is also light, with foreign ownership of Indian stocks at a 14-year low of 14.7 percent.

In the near term, the key trigger for a return of flows will be stable earnings despite the headwinds. Over the long term, as sustained growth becomes increasingly scarce globally, India stands out as one of the fastest-growing major economies, with growth forecast at around 7 percent. This should continue to attract FII flows.