Mumbai, Feb 25 The Indian stock markets are likely to remain volatile in the near term but stabilise towards the end of Q4 of the calendar year 2025, as domestic consumption is on the cusp and normal monsoons can provide a big boost, a report said on Tuesday.
The impact of various government initiatives and normal monsoons will likely start reflecting in improved consumer demand in Q2 2026, according to the 'India Strategy Report' by PL Capital-Prabhudas Lilladher.
"The biggest concern of the market – the FPI flows - may turn positive on the back of higher capex, tax cuts and consumer demand revival. Lastly, the Nifty’s 12-month target is seen at 25,689," the report mentioned.
Food inflation has peaked (declined from 10.9 per cent in October 2024 to 6 per cent currently) and a 25 bps cut in repo rate by the RBI and open market operations (OMO) will ease liquidity in the next 3-6 months.
Other positive factors are a Rs 1 lakh crore income tax cut for the consuming class in India, an increase in religious tourism, and a 17 per cent higher government capex allocation (including PSU and allocation to states).
In its model portfolio, PL Capital is turning overweight on consumers due to an expected uptick in demand following tax cuts, a decline in food inflation, and a cut in repo rate, and has increased weight in banks and healthcare.
Although uncertainty with regard to global markets is sustained, PL Capital believes the growth outlook in India looks far better in FY26 than in FY25.
"As the impact of the budget starts getting reflected in higher capex on a low base and tax cuts and monsoons revive consumer demand, we should see FPI flows turning positive," the report mentioned.
India is also unlikely to experience any meaningful negative effects from US policies, as soft crude oil prices, geopolitical stability (If the Russia-Ukraine war stops), and increased technology transfer to India will neutralise the costs of Trump’s tariffs.
"India’s ability to navigate tariff negotiations, leverage its geopolitical positioning, and realign supply chains ensures that this phase is a momentary recalibration, not a retreat," according to the report.
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