Stock market to hit new high in next 6–12 months; expect US-India trade deal soon: Swati Khemani

The September quarter earnings are likely to be driven by cyclicals and domestic-oriented sectors, says Swati Khemani, Founder & CEO of Carnelian Asset Management & Advisors. 

In an interview with Ritik Raj of Business Today, Khemani said she believes H2FY26 is likely to deliver a positive surprise in terms of earnings performance. 
Edited excerpts:-

1. How do you assess the Q2 earnings season, and what impact do you expect it to have on markets?

We expect Nifty Q2FY26E PAT to grow at a modest mid-single-digit rate of around 4–6 per cent YoY, with ex-BFSI growth expected at ~10–12 per cent YoY. In our view, the earnings downcycle has likely bottomed out, and several macro tailwinds — such as fiscal support, GST and income tax rate cuts, and a liquidity surplus — are yet to be fully reflected in economic growth.

Sector-wise, Cement, Real Estate, Metals, and Energy are likely to lead earnings growth. Meanwhile, Banks, IT, and Consumer sectors may continue to lag due to normalization in the NIM cycle, weak discretionary tech spending, and subdued volume growth, which should gradually improve.

Overall, earnings momentum continues to be driven by cyclicals and domestic-oriented sectors. We believe H2FY26 is likely to deliver a positive surprise in terms of earnings performance.

2. Where do you see the Nifty and Sensex heading in the next 6 to 12 months? What are the biggest factors that could drive the market higher or lower from here?

We expect the market to consolidate further, offering investors a good opportunity to accumulate quality growth stocks that still trade at reasonable valuations. We believe the market could make new highs over the next 6–12 months.

Over the past six months, we’ve seen a combination of rate cuts, liquidity support, tax incentives, and higher government spending — all of which are positive for growth. Lower inflation, stable interest rates, and improved fiscal discipline are also creating the right backdrop for sustained market performance.

We continue to believe that India’s structural growth story remains intact, and equities have more room to grow as earnings improve — particularly in H2FY26, which could deliver an upside surprise. Short-term volatility is part of the journey, but the long-term trend remains upward.

The key risk, in our view, lies in US tariff policies and the potential slowdown in export growth for both the US and India. However, we believe both the governments will eventually work out a mutually beneficial trade agreement, given the economic interdependence.

3. With DIIs now surpassing FIIs in terms of market ownership, what does this structural change mean for the Indian equity market going forward?

The story of wealth creation in India is undergoing a profound transformation. In 2020, Indian households had an equity exposure of around 4 per cent, which has now risen to over 8 per cent. We believe this trend will continue, as domestic participation remains underweight compared to countries such as China (~18 per cent) and US (~40 per cent).

We estimate that ~USD 1.5 trillion could flow from domestic investors into equities over the next decade. This structural shift has made Indian markets far more resilient. In the past, when FIIs sold, markets would often correct by 30 per cent. However, despite persistent FII selling over the last four years, the market has continued to deliver healthy returns, underscoring the strength of domestic inflows. This momentum is likely to continue.

4. IT was among the worst-performing sectors, yet it has seen a sharp rebound in early October ahead of results. Is this just a short-term, pre-earnings rally, or the beginning of a genuine revival in the sector?

IT companies continue to maintain strong margins, and large-cap names are now trading at reasonable valuations. We remain postive on the sector, as much of the negative news appears to have been priced in.

The key missing element has been earnings growth, despite robust order books. Historically, when the business cycle is at its weakest, growth visibility is limited, negative sentiment dominates — but these are often the best times for long-term investors to find value opportunities.