Corporate Earnings Likely to Drive Indian Equity Markets Amid Global Volatility: Report

New Delhi, Oct 12 (KNN) Indian equity markets are likely to become increasingly driven by corporate earnings, with companies demonstrating strong cash flows, sustainable earnings visibility and disciplined execution better positioned to navigate continued volatility, according to a research report by ICICI Prudential Asset Management Company (AMC).

The report said external risks, including tensions in West Asia, crude oil prices, global bond yields and foreign portfolio investor (FPI) outflows, could continue to influence market movements. However, domestic liquidity and resilient economic activity are expected to provide some support, making disciplined stock selection increasingly important for investment returns, ANI reported.

Indian equities came under significant pressure in September, with the Nifty 50 declining 6.1 per cent amid escalating geopolitical tensions, elevated crude oil prices, rising global bond yields and foreign investor selling.

The Nifty Midcap 150 and Nifty Smallcap 250 indices fell around 7.1 per cent and 3.1 per cent, respectively, during the month.

FPIs withdrew approximately USD 4.1 billion from Indian equities in the secondary market, while domestic institutional investors (DIIs) bought around USD 8 billion, cushioning the impact of overseas selling.

Inflation And Interest Rates Remain Key Concerns

On the macroeconomic front, the report flagged inflationary pressures and the possibility of a structurally higher interest-rate environment.

India's consumer price inflation rose to 4.8 per cent year-on-year in August from 4.5 per cent in July. The country also recorded a 12.6 per cent rainfall deficit during the monsoon season, raising concerns over agricultural output, rural incomes and food inflation.

Against this backdrop, the asset manager said companies generating stronger near-term cash flows could be better positioned than those relying on earnings expected far into the future, as higher discount rates could weigh on valuations.

Companies with excessive debt could also face greater balance-sheet risks as funding costs rise. The report said portfolios could benefit from a greater focus on value-oriented businesses with strong cash generation, prudent capital structures and durable balance sheets.

New Project Announcements Rise 29%

India's investment outlook showed some positive signs, with new project announcements rising around 29 per cent year-on-year to Rs 14.6 trillion in Q1FY27, largely driven by private-sector investments. Government project announcements, however, declined during the period.

The report identified renewed tensions in West Asia, monsoon-linked inflation outcomes and the Reserve Bank of India's policy decisions as key factors to watch.

It said companies with sustainable earnings visibility and strong execution capabilities would play a critical role in market performance as investors increasingly focus on corporate fundamentals.

(KNN Bureau)