India equities to avoid 2026 washout as valuations offer safety
Bharti AXA Life CIO Rahul Bhuskute says India's Nifty index is unlikely to crash this year because strong corporate earnings and below-average valuations outweigh the risks from rising global bond yields and foreign outflows.
Rahul Bhuskute, chief investment officer at Bharti AXA Life, has dismissed fears of a market washout in India this year, pointing to resilient corporate earnings and a valuation discount that provides a buffer against global macroeconomic shocks. Despite a turbulent first half of 2026, Bhuskute argued that the Nifty index's core growth drivers remain intact.
The case for Indian equities rests heavily on current pricing relative to historical norms. The Nifty's one-year forward price-to-earnings ratio sits at roughly 20 times, safely below its 10-year average of nearly 21 times. This discount is compounded by an expected 15% to 16% earnings per share expansion for fiscal year 2027, suggesting the market is pricing in growth at a reasonable cost.
The primary counterweight to this bullish outlook is the trajectory of global bond yields. Rising US yields indicate expectations of sticky inflation, a dynamic that could force central banks to tighten liquidity. For India, this translates to specific threats: multiple compression, accelerated foreign institutional investor outflows, and currency depreciation.
This inflationary pressure is largely supply-driven, stemming from crude oil volatility tied to the West Asia conflict and a forecasted super El Niño weather pattern. Bhuskute noted that both the Federal Reserve and the Reserve Bank of India are shifting from viewing inflation as transitory to assessing the durability of their policies, a shift that typically precedes monetary tightening. However, he expects any rate hikes to remain measured, as aggressive action cannot easily cure supply-side shocks.
Foreign capital flows are a critical variable for Indian markets. Over the past two years, investors reallocated funds toward alternative emerging markets offering superior near-term growth. Bhuskute expects this trend to reverse as India's domestic earnings momentum accelerates and its valuations revert to historical averages, creating an attractive entry point for foreign portfolio investors over a two-to-three-year horizon.
On a sectoral level, the outlook is broadly constructive across market capitalizations. Mid and small-cap stocks are favored for their high growth potential and exposure to emerging sectors. Large caps are also drawing increased optimism, with growth recovering across banking, financial services, consumer, industrial, and healthcare sectors.
"We recommend holding a well-diversified portfolio across large, mid and small caps in today's scenario," Bhuskute said. This balanced approach reflects a market that is neither immune to global liquidity shocks nor lacking the fundamental earnings momentum to outperform over the medium term.
