India's market valuations more reasonable, domestic sectors likely to outperform: Report
New Delhi, June 15
India's market valuations have become more reasonable after a correction, particularly in large caps and select cyclical sectors, a report said on Monday.
The report from Axis Mutual Fund said domestic‑facing sectors such as banking, capital goods, manufacturing and selective consumption themes are preferred over global‑facing sectors like information technology.
Mid‑cap and small‑cap segments have remained resilient supported by strong domestic liquidity and selective earnings visibility. The report added corporate earnings remained healthy but the outlook softened as FY27 earnings downgrades increased amid rising global uncertainties and cost pressures.
The report noted that US-Iran conflict's impact is sector‑specific with upstream energy players to benefit from elevated prices while downstream oil marketing companies face margin constraints.
Sectors with high fuel dependence, including aviation, logistics, and transportation, face immediate cost pressures. Other segments such as autos, pharmaceuticals, and industrials are affected more indirectly through higher raw material costs and weaker demand sentiment.
Indian equities faced pressure due to geopolitical tensions and crude oil volatility, with benchmark indices declining during the month. In May, the benchmark indices declined, with the BSE Sensex and Nifty 50 falling 2.8 per cent and 1.9 per cent, respectively.
On fixed income, the fund house said the 10-year G-Sec yield is expected to trade in the 6.75 per cent-7.10 per cent range during the second half of 2026, while favouring short-duration and accrual-focused strategies.
Bond yields remained volatile, easing briefly on softer crude prices before moving back up as geopolitical tensions in West Asia persisted.
RBI kept the repo rate unchanged at 5.25 per cent and maintained a neutral stance while introducing measures to attract foreign capital into debt markets.
Inflation remains relatively contained at around 3.5 per cent, but risks remain from higher crude prices, weather-related disruptions and food inflation.
Structural drivers such as potential inclusion in global bond indices, FCNR(B) deposits and ECB inflows could support foreign investments into Indian debt markets.
— IANS
Reader Comments
Honestly, I'm worried about the mid-cap resilience everyone keeps talking about. Sure, domestic liquidity is strong, but if earnings outlook softens in FY27, we could be in for a rude shock. Need to be cautious with stock selection now, not just SIP and forget.
The 10-year G-Sec yield range of 6.75-7.10% seems reasonable. RBI holding repo at 5.25% is good for borrowers but I hope they don't wait too long to cut rates if inflation stays under 4%. Our bond markets need stability, not volatility.
As a foreign investor, India still looks interesting despite the dip. Domestic sectors outperforming makes sense given the strong consumption story. But I'd like to see more clarity on how the US-Iran situation affects our upstream energy stocks long term.
Axis Mutual Fund is one of the better houses, so I trust their analysis. Banking and capital goods are my picks too. But please, can we stop hyping every report? The BSE Sensex fell 2.8% in May, that's a real loss for retail investors like my parents.
The part about crude oil affecting aviation and logistics hits home. My brother works in supply chain and costs are already squeezing margins. Hope the government keeps an eye on fuel prices to protect these sectors. Also, good to see inflation contained at 3.5% 🎯
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