Expert view: Jimeet Modi of SAMCO Group on key risks for the Indian stock market, Nifty 50 outlook, RBI MPC and more

Expert view: Jimeet Modi, the founder and CEO of SAMCO Group, while the Indian stock market exhibited muted performance in the first half of the financial year (H1FY26), the second half (H2FY26) could spring positive surprises. He believes policy support, monetary easing, and a favourable base effect combined will set the stage for earnings momentum to re-emerge. In an interview with Mint, Modi shared his views on market risks, RBI MPC expectations and the outlook for the Indian IT sector after the H-1B visa fee hike. Here are edited excerpts of the interview:

Did the market's performance in H1FY26 meet your expectations? What are the key takeaways?

The equity markets have slipped into a phase of muted performance, weighed down by sluggish earnings growth and a cautious undertone from investors.

The Nifty 50 had made an all-time high of 26,277 on 27th September 2024. Since then, it has been trading below that level. The past year has been marked by multiple macroeconomic challenges, ranging from global uncertainty to uneven domestic demand, which have kept sentiment subdued.

The earning performance of India Inc. has continued to drift lower in CY25 year to date (YTD).

Having said that, the effects of policy measures like relief given in the income tax during the budget presentation, RBI slashing interest rates by 50 basis points (bps) and the recent announcements of major cuts in the GST rates will start trickling into the system from the second half (H2) of FY26 and it should begin impacting positively the corporate performance and its profitability going ahead.

Where do you see the Nifty 50 by the end of the financial year?

As discussed in the previous response, under the surface of restraint lies a potential inflection point.

With expectations already reset lower, the second half could spring positive surprises.

A combination of policy support, monetary easing, and a favourable base effect sets the stage for earnings momentum to re-emerge, catching many on the Street off guard.

What are your expectations from the RBI MPC? How will it impact the Indian market?

The market leans toward a rate pause as the more likely baseline, with a 25 bps cut being a plausible upside scenario if inflation remains very soft and growth shows signs of faltering, which is highly unlikely.

The RBI’s commentary and forward guidance will likely be more important than the magnitude of any changes, like signals about the future path of rates, inflation risks, and liquidity that will drive market reaction.

In a positive surprise (modest cut), equities and bonds should benefit; in a hawkish surprise, risk assets may be under pressure.

RBI will keep an eye especially on: CPI/core inflation data, food and fuel prices, global commodity movements, and currency pressures (INR).

What are the key triggers that will drive the market?

The recent weakness in Indian equities cannot be explained by a single factor; it reflects a combination of market dynamics that have converged over the past few months.

Foreign Portfolio Investors’ (FPIs) outflows have added to the headwinds.

Global risk-off sentiment, shifts in asset allocation, and heightened geopolitical concerns have led FPIs to reduce exposure to Indian equities, further weighing on the market.

Alongside these flows, valuations had risen sharply over the past year, reaching levels where a correction was natural. In many cases, earnings delivery lagged the re-rating, which amplified the impact of these valuation pressures.

Other factors, such as US President Donald Trump’s policy stance, heightened geopolitical volatility, and relatively weaker earnings delivery from certain sectors, have also contributed.

Despite these challenges, the underlying domestic economy remains resilient, supported by structural growth drivers and favourable policy measures.

Over the medium term, as valuations recalibrate, earnings growth and broader economic fundamentals are expected to play a more prominent role in determining market direction.

For investors with a long-term horizon, these near-term pressures are temporary in nature.

What sectors could lead the next leg of a rally?

On the fiscal side, the government’s decision to reduce personal income tax rates is a direct attempt to boost consumption.

More money in the hands of households typically translates into higher discretionary spending, benefiting sectors like consumer durables, automobiles, travel, and retail.

With urban demand showing early signs of revival, a tax cut could further stimulate spending, especially during the upcoming festive period.

For corporates catering to domestic consumption, this could mark a turning point in topline growth. The recent announcement of a reduction in GST rates across select categories is expected to ease the indirect tax burden on consumers.

Lower prices improve affordability and can revive demand in sectors that had been struggling with volume growth.

Combined with personal tax cuts, the GST relief enhances purchasing power and ensures that consumption-driven sectors gain momentum.

As festival demand kicks in, we may see companies catering to the domestic audience across the consumer sectors report better sales volumes than the market currently anticipates.

What should be our strategy for the mid and small-cap segments?

Both mid-and small-cap segments are currently trading at valuations above their historical medians.

That said, there continue to be selective opportunities in both segments that have robust earnings visibility, resilient balance sheets, and exposure to structural growth themes.

While headline multiples suggest some caution is warranted, disciplined stock selection can still uncover opportunities within the broader mid and small-cap universe.

Do you see any major risk for the market that could spoil the party?

Looking at the current scenario, major risks that could spoil the party or disturb the status quo going into H2FY26 are more external than internal.

Global rate shocks and Fed policy: A hawkish Fed or rising global yields could trigger FPI outflows and hurt risk appetite.

Foreign investor outflows: Sustained selling by FPIs on global risk aversion or valuation concerns can weigh on markets.

Geopolitical risks: Global tensions, trade disruptions, or conflicts could affect capital flows and investor sentiment.

Some of the internal risks that can plague the markets include:

Valuation stretch and earnings misses: High valuations leave little room for disappointment if earnings growth slows.

Inflation and commodity prices: Any spike in crude oil, food prices, or global commodities can revive inflation risks, forcing the RBI to stay cautious.

Rupee depreciation: A weaker Indian rupee (INR) could increase import costs and dent corporate margins.

Domestic demand and macro slippage: Slower consumption, weak rural demand, or fiscal slippage can derail growth expectations.

Liquidity and credit stress: Tightening financial conditions or banking sector stress can hurt credit growth and risk appetite.

Policy or regulatory shocks: Sudden tax or regulatory changes can impact sectoral performance and sentiment.

How do you see the H-1B visa fee hike impacting Indian IT firms? The HIRE Act is another big risk for the Indian IT sector.

The H-1B visa fee hike poses more challenges for the US than for India. An IT professional on an H-1B visa still costs less than a local hire in the US and significantly less than hiring in India, reducing incentives for local hiring and encouraging firms to adjust their onshore–offshore mix.

However, AI and automation are creating structural headwinds for the sector. An increasing share of routine coding, testing, and maintenance work is being automated, compressing margins and eroding the traditional labour-arbitrage advantage that has underpinned the Indian IT model for decades.

Firms that continue to rely on large teams for routine, labour-intensive work risk commoditization, losing differentiation and facing margin pressure. To sustain growth and profitability, IT companies must move beyond routine execution, focusing on high-value services and expanding into high-growth international markets.

The proposed HIRE Act adds further risk, though it has already faced opposition from Fortune 500 companies. Since the bill is still at the proposal stage, IT firms must deploy their workforce efficiently, balancing onshore and offshore professionals to manage costs and protect margins.

Broad structural challenges remain, including AI-driven disruption, evolving client expectations, and the need to move beyond routine maintenance work.

Despite these challenges, valuations in the Indian IT sector are currently reasonable and are likely to remain in a similar range for the near term, offering opportunities for firms that can navigate regulatory changes while investing in innovation and workforce transformation.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.