Nifty 50 target pegged at 29,000 for next 12 months; mid, small-caps may outperform, says Emkay's Head of Research

The Indian stock market is on track for a constructive 2026, with the Nifty 50 likely to reach 29,000 over the next 12 months, according to Seshadri Sen, head of research and strategy at Emkay Global Financial Services.

So far this year, the Nifty has gained about 10% and is currently trading near 25,942, while the Nifty Midcap 100 is up 5%. The Nifty Smallcap index, however, has fallen more than 6%. Mid and small-cap stocks, Sen says, could still outperform over the next one to two years, provided investors follow a disciplined, bottom-up approach to stock selection.

Edited excerpts from his interview with Mint:

Why has the domestic market struggled to sustain a bull trend?

The domestic market faced two major headwinds. First, twin tightening—fiscal and monetary—through calendar year 2024 had a lagged effect on growth and corporate earnings, leading to significant downgrades in the broader market from late 2024.

Second, global factors weighed heavily. High US tariffs weakened the rupee, discouraging foreign investors, while the artificial intelligence (AI) boom drew capital toward developed markets like the US.

What is your 12-month target for the Nifty 50?

The outlook for 2026 is constructive, with expectations that it will be meaningfully better than 2025. The 12-month target for the Nifty is around 29,000, implying low double-digit returns.

While short-term volatility may persist due to currency stress and trade-related uncertainties, any meaningful correction is seen as a buying opportunity, supported by improving earnings visibility and macro stability.

Can mid and small-caps be expected to outperform next year?

Yes. Mid and small-caps (SMIDs) are expected to outperform over a one- to two-year horizon, though near-term volatility may continue.

SMIDs are delivering higher earnings growth, improving balance sheets, and gaining share over large companies in several sectors such as financials, IT services, healthcare (non-pharma), EMS, and platform businesses.

A disciplined, bottom-up approach to stock picking is critical. While large caps offer stability, alpha generation will primarily come from SMIDs.

How will a delayed India-US trade deal affect markets?

A delay in the India-US trade deal will keep pressure on the rupee, which in turn makes foreign investors cautious and adds to short-term vulnerability. Export-oriented sectors like textiles and seafood will be affected.

However, the delay is not structurally negative. The deal is seen as inevitable and important for both countries, and its eventual conclusion could provide a major boost to currency stability and foreign investment inflows.

What factors indicate corporate earnings could revive from Q3?

Several indicators suggest that corporate earnings are poised for a revival. FY27 earnings estimates have started moving upwards after a prolonged period of downgrades, while the share of earnings upgrades is increasing and downgrades are steadily declining.

At the same time, credit growth appears to be bottoming out, particularly in retail and unsecured lending, which should support consumption and business activity.

Importantly, the positive impact of GST cuts, interest rate reductions and regulatory easing has not yet been fully reflected in corporate earnings.

Additionally, Q2 results already delivered a higher proportion of positive earnings surprises, even before the benefits of the GST measures begin to flow through.

How do you assess India’s growth-inflation dynamics? Is weakness in nominal GDP a concern?

The headline inflation is bottoming out, but should remain within the Reserve Bank of India’s tolerance band for the next three to four quarters. The weakness in nominal GDP is slightly worrying, but there are enough stimuli, both fiscal and monetary, that should enable a recovery in calendar year 2026.

The weak growth, however, is just one of the disinflationary forces in play – there are supply-side factors like weak commodity and food prices that are also contributing.

What are the sectors you are bullish on for the next one to two years?

Discretionary consumption remains attractive, including passenger vehicles, two-wheelers, consumer durables like air conditioners, and internet- or platform-led consumption themes.

Industrials are supported by sustained government capital expenditure in railways, defence, power, and renewables.

Healthcare, particularly non-pharma segments, offers growth opportunities, while utilities and power remain multi-year structural plays. In financials, select small and mid-sized banks and NBFCs are preferred over large banks.

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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.