The Indian stock markets are likely to remain volatile in the near term but are expected to stabilise towards the end of Q4 of the calendar year 2025, as domestic consumption is on the cusp of revival and normal monsoons could provide a significant boost, a report said on Tuesday.
The impact of various government initiatives and favourable monsoons is expected to start reflecting in improved consumer demand by Q2 2026, according to the ‘India Strategy Report’ by PL Capital-Prabhudas Lilladher.
“The biggest concern of the market—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 eased, declining from 10.9 per cent in October 2024 to 6 per cent currently. A 25 bps cut in the repo rate by the RBI, along with open market operations (OMO), is expected to ease liquidity over the next 3-6 months.
Other positive factors include a Rs 1 lakh crore income tax cut for middle-income and lower-income consumers, an increase in religious tourism, and a 17 per cent higher government capex allocation (including PSU spending and allocations to states).
In its model portfolio, PL Capital is turning overweight on consumers due to an expected uptick in demand following tax cuts, declining food inflation, and a repo rate cut. It has also increased its weightage in banks and healthcare.
Although uncertainty regarding global markets remains, PL Capital believes India’s growth outlook for FY26 appears far better than in FY25.
“As the impact of the budget starts reflecting in higher capex on a low base, alongside tax cuts and monsoons reviving consumer demand, we should see FPI flows turning positive,” the report stated.
India is also unlikely to face any significant negative effects from US policies. Soft crude oil prices, geopolitical stability (if the Russia-Ukraine war ends), and increased technology transfers to India are expected to neutralise the costs of potential US tariffs.
“India’s ability to navigate tariff negotiations, leverage its geopolitical positioning, and realign supply chains ensures that this phase is a temporary recalibration, not a retreat,” the report added.
(Inputs from IANS)
