India's Stock Market: Why It's Struggling and What Investors Should Do

Overview of the Indian Stock Market

The Indian stock market, specifically the Nifty 50, is currently facing challenges in maintaining its position above the 26,000 mark. Despite a favorable macroeconomic environment, potential earnings growth, and reasonable valuations, the market is not reflecting these positives. There are several key reasons behind this subdued performance, including the decline of the rupee against the US dollar, uncertainty over an India-US trade deal, and continuous selling by foreign institutional investors (FIIs).

Key Challenges

The rupee has fallen to an all-time low of 90.75 against the US dollar, and FIIs have sold off Indian stocks worth ₹19,605 crore in the cash segment this month. These factors are contributing to the market's recent struggles.

Expert Advice for Investors

Despite the current challenges, experts remain optimistic about the prospects of the Indian stock market in the coming year. They advise investors to buy quality stocks available at fair valuations, citing favorable growth-inflation dynamics, monetary easing, signs of earnings recovery, and reasonable valuations in large caps as positive factors.

Supportive Macro Backdrop

According to Prashanth Tapse, Senior VP (Research) at Mehta Equities, synchronized interest rate cuts by both the US Federal Reserve and the RBI create a supportive macro backdrop for Indian markets. This environment enhances liquidity, supports equity valuations, and sets the stage for an earnings upgrade cycle as interest costs decline and operating leverage improves.

Sectors to Watch

Tapse highlights that rate-sensitive sectors such as banks, NBFCs, real estate, infrastructure, automobiles, and capital goods tend to outperform in the early phase, while consumption and infrastructure benefit as the growth impulse sustains.

Stocks to Buy

Tapse recommends the following five stocks for long-term growth in the low-interest-rate regime:

• L&T: With a 12-month target price of ₹4,520, L&T is expected to benefit from a sustained lower interest rate environment, accelerating government-led infrastructure spending and private sector capex.
• Godrej Properties: With a 12-month target price of ₹2,369, Godrej Properties is well-positioned to benefit from a lower interest rate environment, improving housing affordability and supporting stronger residential demand.
• Tata Motors PV: With a 12-month target price of ₹415, Tata Motors' passenger vehicle business is expected to benefit from a lower interest rate environment, reducing vehicle financing costs and improving affordability.
• Bajaj Finance: With a 12-month target price of ₹1,140, Bajaj Finance is a key beneficiary of a declining interest rate cycle, supporting margin expansion and profitability.
• Ather Energy: With a 12-month target price of ₹780, Ather Energy is expected to benefit from a lower interest rate environment, improving affordability for two-wheelers, particularly in the premium electric scooter segment.

These stocks are poised for growth in the low-interest-rate regime, offering investors opportunities for long-term gains.