Expert view: Nifty 50 may hit a record high by FY26-end; H-1B visa fee hike, HIRE Act key risks, says HDFC Tru head

Expert view: Pranab Uniyal, Head - HDFC Tru (Investment Advisory, HDFC Securities), believes the Nifty 50 may hit a record high by the end of FY26 if tariff issues are resolved and major sectors like the IT and pharma are not targeted by the US with protectionist measures. In an interview with Mint, Uniyal flagged the H-1B visa fee hike and the HIRE Act as key risks the market should not overlook. Here are edited excerpts of the interview:

How do you see the Indian stock market's performance in the first half of FY26?

Trump’s reversal of liberation day tariffs marked a bottom, and Indian markets have rallied sharply from those lows.

However, on a YTD (year-to-date) basis or 12-month basis, returns have been flat to negative. India has also significantly underperformed emerging markets during this period.

Weak revenue growth, FII selling and expensive valuations were the key reasons. Markets would have performed even worse, but large, consistent domestic inflows have cushioned the fall.

Do you expect H2FY26 to be better than H1? What are the key tailwinds?

Stronger earnings growth, more moderate valuations, interest rate cuts and GST cuts could become tailwinds.

We believe the earnings downgrade cycle has more or less bottomed out.

We expect earnings growth to pick up in certain large sectors, such as banking and consumer staples, over the next six months.

GST cuts could help auto and consumer durables earnings. Some reasonable ideas can also be found in mid- and small-cap stocks, but investors should rely on strong bottom-up research.

What are your base case and bull case targets for the Nifty 50 for FY26?

Our median estimate is for Nifty to reach a new high by the end of FY26. This assumes that tariffs moderate and that the US does not target large sectors like IT and pharma with protectionist measures.

The bear case would be if the IT sector is hit with significant protectionist measures.

The actual levels would depend on the severity of such measures. The bull case could come if the tariffs/trade wars are meaningfully lower and the current reforms and monetary and fiscal measures are improved even further.

Do you see some risks that investors should not overlook?

The “Make America Great Again” (MAGA) constituency has been discussing action against the outsourcing of jobs in the services sector. Peter Navarro, Donald Trump's trade advisor, has also supported a call to “tariff” foreign remote workers.

The H-1B visa fees, the HIRE Act (which proposes a 25 per cent tax on outsourcing payments), or other such measures could meaningfully impact India’s IT sector and its future growth.

Indian IT/ ITES sector exports were around $200 billion in FY24 and about 7-8 per cent of GDP. US tariffs on the Indian IT/ITES sector would have a large impact on IT (13 per cent Nifty weight) and even drag down sectors like BFSI, real estate, autos and consumer durables.

This is the single biggest risk to be wary of. A binary event like this can only be hedged when the details and their impact become clearer. For now, we focus our investments on other sectors.

When can we see a material revival in earnings? Could it start from Q2 only?

The earnings recovery may be mild in Q2 but will likely get stronger in Q3, and Q4 should see a marked improvement from current levels. We, as well as the street, are estimating 15-17 per cent earnings growth for Nifty in FY27.

Which sectors do you expect to lead the next rally of the markets?

Amid rising global trade tensions, we are strategically favouring domestic-oriented sectors that are more insulated from international uncertainty.

Our focus is on sectors like large banks, real estate, auto OEMs, cement, and consumer discretionary, which are directly tied to India's robust and growing internal demand.

We have been underweight in the IT, oil and gas and FMCG sectors for some time now.

FIIs have been relentlessly selling Indian stocks since July. What could bring them back to the Indian market?

Historically, foreign investment flows have been sensitive to a mix of global economic conditions, domestic policy, and market fundamentals.

FIIs were heavy sellers in 2008 and in 2018 but became net buyers in 2009 and 2019 when valuations became much cheaper and economic fundamentals improved.

Over the past 12 months, the MSCI emerging markets index has outperformed the Nifty 50 by 23 per cent.

As a result, India’s current valuation premium to emerging markets has fallen from a high of nearly 100 per cent in September 2024 to nearly 65 per cent now, which is broadly in line with the 10-year median of 60 per cent.

FIIs have funded their emerging market trades so far without outflows from India. With this relative India market correction, we expect FIIs to start buying again as and when the tariff dispute is resolved.

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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.