Direct Equities: Sharp correction, strong base; bounce likely

Indian equities saw a sharp March 2026 correction, with Nifty falling 11.3% MoM (vs DJIA -7.7%) amid risk-off sentiment, Middle East tensions, and energy disruptions. Record FPI outflows (~USD 13.2 bn) were more than offset by strong DII inflows (INR 143k cr), highlighting robust domestic support despite a broader USD 14 bn EM outflow. Globally, markets were weak, but India narrowed its underperformance vs MSCI EM. Oil-sensitive sectors (aviation, paints, tyres, chemicals) faced pressure, while upstream energy and defence held up; IT, healthcare, FMCG, and pharma showed relative resilience, while financials lagged. Policy support (gas prioritization, fuel excise cuts), improved FY27 GDP outlook (7.1%), and INR depreciation to 94.8/USD provided partial offsets, especially for exporters.

Highlights

• Market Outlook: Positive bias as earnings momentum improves; FY27E Nifty EPS seen growing ~18% YoY (risk of ~3% downgrade post Q4FY26 due to war-led oil/inflation uncertainty).
• Earnings Growth: FY25–27E CAGR at ~12% for Nifty-50/BSE-500; FY26 growth ~6–8%, FY27 ~18%.
• Valuations: Mid/small caps at ~22x/20x, near 10-year averages; time correction + earnings catch-up improving attractiveness.
• Sector View: Preferred sectors are Consumer Disc, Banks, and IT; selective opportunities lie in Auto, NBFCs, Power, Chemicals, Textiles, Telecom, and Pharma; tactical plays include Media, Energy, Healthcare, and US-exposed manufacturing; while Infra/Industrials, Capital Goods, Realty, Defence, new-age tech, OMCs, and FMCG remain underweight.