Indian stock market in a recovery phase, increase equity allocation over next 2 quarters, says Centrum Broking CEO

Expert view on markets: Sandeep Nayak, executive director (ED) and chief executive officer (CEO) of Centrum Broking, believes the Indian stock market is in a recovery phase with a short-term Nifty 50 bottom in place. In an interview with Mint, Nayak said if the earnings growth trajectory over the next two quarters remains good and we see a good monsoon, the Nifty 50 may see a new high in the latter half of FY26. Here are edited excerpts from the interview:

What is your view on the current market structure? Do you think most headwinds are discounted now?

Indian markets are amid a structural bull run that began a few years back and has witnessed a major correction triggered by domestic concerns, global economic uncertainty around the Donald Trump reset, and foreign investor withdrawals.

This has created an opportunity for those on the sidelines to get into the market with a medium—and long-term view and cherry-pick fundamentally good stocks that have seen a substantial correction.

The time has come to increase allocation to equities gradually over the next two quarters.

It is evident that most headwinds have been recognised, and markets have reacted, but domestic factors are fully discounted. The economy is on the rebound, as evident in the robust GDP growth numbers we saw for Q3FY25.

The Trump reset is not yet fully discounted, and its full impact on countries and sectors worldwide will be known over the next 100 days.

When can we expect the start of a sustained market recovery? Is there a chance for the Nifty 50 to hit a fresh record high this year?

The period of readjustment to domestic and international factors is at play as we speak.

Domestic factors are on the mend with direct tax concessions in the Budget, and a hint from the Finance Minister that indirect tax concessions in GST are around the corner.

International factors will take time to settle down. The uncertainty around Trump tariffs is both a risk and an opportunity.

It is a risk in the sense that we don’t know what is coming, but it is also an opportunity for India to strike a trade/tariff deal with the US.

This deal will see new winners and some losers, but overall, it will be positive for the Indian consumer, who will probably get American products at more attractive prices.

We are already in a recovery with a short-term Nifty 50 bottom in place. However, a more sustained recovery with a likelihood of a new high in Nifty 50 is a bit early to call.

If the earnings growth trajectory over the next two quarters is good and we are blessed with a good monsoon, we are likely to see India’s optimism reach a new high in the latter half of FY26.

It is too early to predict a new Nifty high, but it cannot be ruled out.

How should we approach the broader market segments? Should we increase exposure to mid- and small-caps at this juncture?

The Nifty 50’s one-year forward valuation is now hovering around 19 times the Nifty FY26 EPS (earnings per share) consensus estimate, which has seen earnings growth expectations moderate to around 12-14 per cent for FY26.

Given that the market is in a period of adjustment to the uncertain new normal, one should be cautious, and I would feel exposure towards large caps is a safer option.

Having said that, one important investment lesson to remember is the importance of staying invested in turbulent times.

It leads to long-term portfolio value creation. It is, therefore, important to work with your investment advisor and cherry-pick companies that are fundamentally sound and have been victims of the poor overall market sentiment without any real change in their underlying fundamentals.

How should we play the financial sector? Do you see value in large private banks?

Private banks and SFBs (small finance banks) with exposure to the unsecured and microfinance segments have seen their asset quality deteriorate due to increased credit costs.

However, the stress should settle in the next two quarters, and we should see a gradual recovery in the second half of the financial year 2026 (2HFY26).

Interest rates are likely headed lower in FY26. A lower trajectory of rates will impact banks’ NIMs (net interest margins), especially for banks with a lower proportion of fixed-rate loans.

Will these be balanced by treasury gains and a drop in the cost of funds at the margin? Banks with a higher proportion of fixed-rate loans will not be impacted. Certain private sector banks score well here and will be beneficiaries.

Private banks over-owned by FPIs have seen the maximum selling and price correction. Leaders in the Private Bank space offer good value. The financial sector is probably the most interesting, where valuations are reasonable at the current juncture.

Public sector banks have improved asset quality with healthy provision coverage ratios (PCR). Their valuation is attractive, given their improved ROA (Return on assets) and ROE (return on equity) from historical levels.

Most of these banks trade at near or below book, with ROEs in the high teens. This segment has some value picks.

Considering the Trump factor and other global headwinds, what should be our strategy for the auto and pharma sectors?

Due to Trump’s pressure on tariffs, auto and pharma are the most focused sectors. The import duties on automobiles, especially with Tesla’s impending entry into India, are an inflexion point.

Lower import duties on autos with the final entry price point of Tesla EVs and BYD EVs could redefine the dynamics of the auto sector. Likewise, the ultimate tariffs on India’s pharma exports to the US will also be determined over the next month or so.

A major repositioning of portfolio stance in these sectors is due. These reasons have led to a good correction in both these sectors.

It may be wise to be underweight on these two sectors and take a fresh stance once clarity emerges after the US Government’s tariff-related action.

Do you expect a significant rate cut by the US Fed in the near future?

Initially, it appeared that Trump would pour stimulus and his tax cuts would re-accelerate the US economy. However, it appears from the downward movement of the bond yield in the last two weeks that those hopes are fading.

The significant uncertainty created by tariff threats and the federal workforce cut due to DOGE action has clouded the outlook, increasing the risks of a slowdown in the US.

However, Fed Chair Jerome Powell has maintained that the US economy is good despite all the uncertainty.

The Fed has a history of adopting a wait-and-watch policy and data to unfold; therefore, I don’t expect any significant rate cut by the US Fed soon.

How should investors prepare for the elevated interest rates in the US?

The uncertainty of tariffs and federal workforce cuts planned by DOGE has opened up downside risks for the US economy. Therefore, it is difficult to foresee rates staying elevated in the US at this stage.

Trump has advocated growth through a lower rate regime. Elevated rates could arise if the US enters a period of stagflation caused by tariffs, which have an inflationary effect. The probability of such a scenario is low at this point in time.

Q3 GDP came on the better side. Is the worst on the front of the domestic economy over?

The slowdown we witnessed in Q1 and Q2FY25 due to the election and an extended monsoon season created worries about a structural slowdown in the Indian economy.

However, the rebound in the Q3 GDP has alleviated those concerns. India’s growth outlook has improved with select high-frequency indicators such as GST collections, tractor sales, fuel consumption and PMI data all moving in the right direction.

The third quarter has seen rural demand growth in double digits, with urban demand also improving sequentially.

Government capex is expected to grow by nearly 21 per cent year-on-year (YoY) in Q4FY25 to match the budget targets, boosting sentiment and growth momentum.

Tax cuts for the middle class announced in the Budget will play out in FY26, and income support for economically sensitive sections and easier monetary conditions will bode well for domestic growth. Estimates of GDP growth of 6.5%+ for FY26 indicate a strong domestic recovery.

What sectors are you bullish about for the next one to two years?

Domestic consumption stories insulated from global uncertainties should be favoured to do well.

With the individual tax cut measures adopted in the Budget, consumer staples and FMCG stocks are likely to benefit from demand growth over the next year or so, and the growth momentum should carry into FY27 as well.

The other sector I am bullish on is financials—the top four private banks and the top two public sector banks should give good returns to investors.

The private sector banks have seen a long consolidation over the last couple of years and have borne the brunt of FPI/FII selling.

The growth potential of these banks, with the Indian economy chugging along at GDP growth of 6.5 per cent, makes the risk-reward favourable for owning them.

What new and different is Centrum offering to investors amid the rise of new-age brokers?

New-age brokers have done a great job expanding the market by offering cost-efficient platforms. At Centrum, we want to drive the next level of growth by ensuring we have informed traders and investors guided by actionable research.

We have built an app that offers an efficient platform in multiple languages, English, Hindi, Marathi and Kannada (with Gujarati and Bengali to follow) and integrates research and guidance into the app.

The app provides access to technical and fundamental research directly within the platform, ensuring investors have the insights needed to navigate the markets effectively.

We have also built an options strategy builder that allows traders to execute multi-leg strategies with a single click while visualising a payoff table that shows the probable profit and loss at different Nifty levels. Integrating this into the app and enhancing the customer experience is an industry first.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.