Nifty 50 Outlook: Domestic Investors, Corporate Earnings and Credit Growth Support Indian Market

According to the report, artificial intelligence (AI) and semiconductor-based trading, which had driven many Asian markets earlier in the year, saw a widespread decline. Meanwhile, the Nifty 50 rose 2.17 percent compared to the previous month and closed at 24,383.60 at the end of July, while the rupee stood at 95.42 against the dollar. The report states that India's domestic fundamentals remain stable despite the volatile external environment.

The report states that despite several changes made to promote foreign investment, domestic institutional investors (mutual funds, insurance companies, and pension funds) continued to be net buyers for the 37th consecutive month in July, the longest such streak since 2007. They continued to absorb foreign selling throughout the month.

According to the report, corporate earnings saw a significant jump in the first quarter of FY2027. The average EPS of listed companies grew 24 percent year-on-year, compared to just six percent in the previous quarter. The report states that sales, operating profit, and PAT of companies all increased simultaneously. Industrial production also reached its highest level in nearly two years, with capital goods and electrical equipment producing the most output. This indicates that economic recovery is driven by investment, not just consumption.

According to the report, three independent data series are significantly ahead of the average over the past five years. These signals are broader than the numbers themselves. Industrial production (IIP) grew by 7.3 percent in June, compared to the five-year average of around 5.5 percent. Bank credit grew by 17.7 percent in July, compared to the average of around 11.5 percent. GST collections grew by 15.4 percent, reaching a 14-month high, compared to the average of around 10.0 percent. Meanwhile, easing inflation, lower bond yields to 6.77 percent, and the Reserve Bank of India's decision to keep interest rates stable at 5.25 for the fourth time have boosted India's economy.

The report presents a positive outlook for the Indian stock market. Industrial output and credit are at multi-year highs, while earnings growth has accelerated from near zero to 24 percent in the new quarter. Although the Nifty has performed significantly worse than global stock markets in dollar terms, buying by domestic institutional investors and foreign investors is nevertheless signaling a positive outlook. The key factors in the future will remain external, with oil, currency, and sustained earnings growth over the next few quarters determining the economic direction.