Expert view: Indian stock market to stay flat to negative for a few months, says Jayesh Faria of Motilal Oswal

Expert view: Jayesh Faria, Director and Regional Head – West at Motilal Oswal Private Wealth, believes the Indian stock market could remain flat to negative for at least a few more months. In an interview with Mint, Faria said he is overweight in consumption, BFSI, IT, industrials, healthcare, and real estate while underweight in oil and gas, cement, automobiles, and metals. Below are edited excerpts from the interview:

Nifty is down 14% from its peak. Are we headed to a bear territory? When do you expect the market to stabilise?

We have certainly entered a slowdown from the economic perspective, which is reflected in the stock market. However, I don’t think this phenomenon can be termed a bear market.

The 3QFY25 earnings were in line with modest expectations, but forward earnings revisions are the weakest in recent times, with downgrades far outpacing upgrades, especially in our non-Nifty 50 universe.

Earnings for the Nifty 50 rose 5 per cent year-on-year (versus our estimate of +5 per cent); hence, the market will take clues from earnings forecasts for Q1 and Q2 of the next financial year and will stabilise accordingly.

What have been the major factors behind this market fall?

The Nifty slid 5.9 per cent month-on-month in February 2025, closing in the red for the fifth consecutive month and recording the second steepest month-on-month decline since March 2020.

This market correction has coincided with a slowdown in earnings growth, concerns over global economic growth due to the tariff war, and FII outflows.

Is it time to initiate fresh longs, or should one stay clear from riskier equities?

Given the underlying macro-micro backdrop, expectations for FY26 corporate earnings (15 per cent for the Nifty 50) are still somewhat elevated, in our opinion, and are thus ripe for further downgrades.

The recent correction in broader markets factors into potential earnings disappointments ahead.

So, our recommendation is to start building the portfolio if your asset allocation permits the equity investment and stay invested if you are fully invested. We feel the market will stay flat to negative for at least a few more months.

Which pockets of the market have valuation comfort now?

The valuations for midcaps and small caps are still expensive vis-à-vis their history and versus Nifty 50. The Nifty is trading at a 12-month forward P/E (price-to-earnings) of 18.6 times, below its long-period average (LPA) of 20.5 times. Thus, we continue to remain biased toward large caps with a 76 per cent allocation in our model portfolio.

Which sectors are likely to lead the rally if it begins?

We are overweight in consumption, BFSI, IT, industrials, healthcare, and real estate, while we are underweight in oil and gas, cement, automobiles, and metals.

What should be an ideal portfolio for the long term? What mix of equity and other assets would you recommend?

We advise our clients to stick to their long-term asset allocation mix across debt, equity and gold.

We feel it is a good time to increase allocation to debt and equity since overall interest rates globally have to come down, and equity has provided an opportunity to go overweight tactically.

Do you see any notable change in the current investment preference of HNI and UHNIs?

UHNIs allocated aggressively to unlisted or pre-IPO shares this financial year, which they are clearly slowing down on. This segment is still looking at allocating more money into equities at this level, so there is no major change in behaviour from these two segments of investors.

What is your outlook for the growth of the domestic economy? Is the worst behind us?

After tepid corporate earnings and slow GDP growth for Q2FY25, the upcoming results season and GDP also become important.

We expect GDP and corporate earrings to pick up again during the latter half of the year.

The long-term structural story of India’s growth remains intact, with stable microeconomic conditions, rising dominance in the global equity market, and increasing domestic inflows.

Considering this, we may experience a small slowdown, but we remain optimistic about the growth of our domestic economy.

What is your assessment of the current liquidity in the system? Do you expect fewer rate cuts by the RBI?

The controlled deficit, moderate GDP growth, and inflation within the targeted range indicate a stable yield environment. 

The system also has comfortable current liquidity. Rate cuts will depend on INR movement and the rapidly changing global situation (e.g., the US tariff scenario and the Ukraine war).

For many retail investors who entered the market after the COVID-19 pandemic, this is their first experience with a deep correction. What key lessons can they learn from it?

Key lessons for new investors are to stick to overall asset allocation and stay diversified. 

Within equity, stay with quality companies or fund managers who invest in this type of high-quality companies within the large-cap space. 

Valuation for mid-and small-cap companies is still at a premium to large-cap, so they should be avoided. 

Also, one must consider one’s time horizon for investments. Any funds needed for the next three to five years should not be invested in equities.

Read all market-related news here

Read more stories by Nishant Kumar

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.