Emkay sees near-term market weakness but expects Nifty at 25,000 by Dec 2025, driven by govt spending, earnings recovery & FPI stability
Mumbai: The Indian equity market is expected to witness near-term weakness and heightened volatility in the first quarter of the calendar year (CY) 2025, according to Emkay Institutional Equities. However, a gradual consumption recovery is anticipated in H2CY25, led by an improvement in employment trends, a revival in unsecured lending, and an uptick in welfare spending. The brokerage expects Nifty to be at levels of 25,000 by December 2025, and FPI selling to subside by Q2CY25.
India’s capital expenditure growth, which saw a 31 per cent compounded annual growth rate (CAGR) between FY21 and FY24, is likely to slow down to 10-13 per cent in the near term, with election-related constraints weighing on investments. However, a rebound in FY26 is expected as policy certainty returns. While capital-heavy sectors face challenges, green energy continues to be a bright spot.
Nirav Sheth, CEO - Institutional Equities, Emkay Global Financial Services said, “Markets tend to over-react and overextend on both, the upside and the downside. The bottoming process is usually volatile which we are currently witnessing." "Our macros are solid, given the low and stable CAD, fiscal deficit under control, and a more accommodative monetary policy now. We
estimate that the worst of the earnings downgrade cycle is behind us and expect a recovery in the second half of the fiscal – triggered by renewed government spending and tax relief led consumption spend. It is time to buy,” added Sheth.
Despite persistent selling pressures, FPI activity is likely to stabilize post-1QCY25, with valuations having moderated and earnings forecasts bottoming out over the next two to three months. A peak in the US Dollar Index (DXY) should also ease rupee depreciation concerns and help stem FPI selling. The RBI’s liquidity injection could stimulate domestic equities and benefit the BFSI sector, Emkay said.
The earnings downgrade cycle appears to be concluding, with consensus Nifty estimates for FY26 already adjusting downward by 3.9 per cent since January 2025. The firm remains constructive on mid-teens earnings growth for FY26, driven by financials, metals and energy.
The firm maintains an ‘overweight stance’ on discretionary, real estate, and healthcare, while remaining neutral on industrials, IT, and energy. On the other hand, financials, staples, and materials are designated as Underweight due to structural concerns and valuation pressures. The firm’s top investment ideas include Lupin, Zomato, Tata Motors, IndusInd Bank in large caps. Escorts, Paytm, Metropolis in midcaps, and Stovekraft, and Quess Corp in the small cap segment.
The firm anticipates discretionary consumption recovery within 2-3 quarters, underpinned by a rebound in IT hiring, better liquidity conditions, and an improvement in retail lending dynamics.
Additionally, state-led women-centric welfare schemes and robust winter crop sowing are likely to bolster consumption trends.
