Indian equities offer favorable medium-term risk-reward, says Equirus
Easing geopolitical tensions, normalized valuations, and a shift in global capital flows create a compelling entry point for investors in Indian markets, according to Equirus Asset Management.
Indian equities present a favorable medium-term risk-reward profile, and investors should avoid waiting for absolute market clarity before deploying capital. Ashutosh Tiwari, managing director and chief investment officer of public equities at Equirus Asset Management, noted that markets typically discount improving fundamentals long before they become obvious to the broader public.
A primary catalyst for this optimism is the stabilization of global energy markets. Tiwari argued that the peak of the US-Iran conflict is likely behind us, as the economic costs and the evolution of drone warfare constrain prolonged military escalation. Consequently, crude oil prices have retraced sharply from recent peaks, removing a major overhang on global growth.
Domestically, the Indian market has undergone a necessary valuation reset rather than a fundamental deterioration. After the Nifty 50 reached peak optimism at roughly 25 times trailing price-to-earnings in September 2024, moderating nominal GDP growth triggered a derating. By March 2026, valuations had fallen to their lowest levels in nearly a decade, excluding the pandemic dislocation.
The index has since rallied over the past three months and currently trades at approximately 22 times trailing earnings. Tiwari sees room for multiples to expand back toward 25 times over the next two years, supported by a potential resurgence in foreign institutional investor flows. He expects global capital to rotate out of heavily valued artificial intelligence technology stocks and into markets with stronger structural growth, like India.
India’s manufacturing sector is also gaining a structural tailwind. As China pivots its industrial strategy toward profitability and capacity reduction, the Chinese yuan has appreciated significantly against the rupee over the past year. This currency shift, combined with ongoing global supply chain diversification, enhances the export and domestic competitiveness of Indian manufacturers.
Within the equity market, Tiwari is increasingly constructive on the financial sector, which has underperformed for two years due to deposit and credit growth concerns. He also favors large-cap stocks, noting their reasonable valuations and high liquidity make them prime beneficiaries of returning foreign capital. Conversely, he views mid-cap valuations as stretched.
Opportunities exist in the small-cap space, particularly for companies with market capitalizations below ₹5,000 crore that trade at reasonable trailing multiples. While near-term earnings growth in the first half of fiscal 2027 will face margin and demand pressures from elevated inflation, Tiwari expects relief by the third quarter. Softening commodity prices should simultaneously restore corporate pricing flexibility and stimulate consumer spending.
