Nifty 50 to reach 26,600 level by 2025-end; IT among top sectors that can create wealth: Achin Goel, Bonanza Group

Mint

21 hours ago

Expert View: Achin Goel, PMS Fund Manager at Bonanza Group, believes that Nifty 50 can reach at 26,600 level by the end of 2025, helped by 11% EPS growth in Nifty-50 constituent companies. Furthermore, he expects the FII to remain bullish on the Indian stock market as India's solid economic growth and ongoing reforms will mitigate geopolitical risks and maintain strong foreign investor interest. Edited excerpts:
India's strong macroeconomic fundamentals are acting as a powerful tailwind for the equity markets. We're seeing a combination of high GDP growth, strong tax collections, manageable inflation, and consistent government capital expenditure—all of which are laying a solid foundation for sustainable earnings growth. From an investor's perspective, this kind of macro stability builds confidence. For example, a disciplined fiscal approach and RBI's measured monetary policy help keep inflation and interest rate volatility in check, which is crucial for long-term equity flows, especially from institutional investors. Moreover, the government's emphasis on infrastructure, manufacturing through PLI schemes and digital public infrastructure is accelerating a multi-sector capex cycle. This directly benefits sectors like capital goods, construction, banking and industrials. In addition, India's demographic dividend and rising middle class continue to support domestic consumption, which strengthens sectors such as FMCG, autos and retail. Put simply, strong macros don't just support the market—they help broaden the rally and deepen sectoral participation, making India one of the attractive investment destinations among emerging markets.
The recent stellar run of the smallcap index, which has outperformed the Nifty 50 and large caps with gains like 6.87% in May 2025 and double-digit returns for many stocks, is driven by strong growth potential and renewed investor interest in sectors such as railways, defense, and financials. Smallcaps benefit from their higher growth prospects and are seen as attractive for medium-to long-term investors willing to tolerate higher risk. However, this rally comes amid significant challenges: Q4FY25 smallcap profits contracted by 19%, contrasting with midcap and largecap earnings growth. Earnings downgrades, government capex slowdowns, and sector-specific weaknesses—especially in cement, private banks, consumer, and auto sectors—have raised concerns about sustainability.
Thus, while smallcaps offer compelling upside due to valuation discounts and sectoral tailwinds, the earnings misses and macro uncertainties warrant caution. Investors should balance the growth potential against heightened volatility and selectivity risks amid an uneven earnings backdrop.
The outlook for Indian IT sector in FY26 appears challenging, primarily due to the impact of discretionary spending cuts in the US amid rising recessionary pressures. The US, which accounts for over half of India's US$190bn software exports, is experiencing a cautious consumer sentiment with many consumers planning to reduce spending on discretionary items. This cautiousness is exacerbated by tariffs imposed by the US administration, which have fueled inflation and heightened fears of a recession. Tariffs, which is not directly targeting IT services, but indirectly affect Indian IT companies as their clients in manufacturing, logistics and retail sectors face higher costs and uncertainty, leading to delayed projects and slower deal cycles. As a result, current scenario is marked by limited new outsourcing opportunities and pressure on margin due to pricing and limited rupee depreciation benefits.
However, Indian IT companies specialising in AI, Gen AI and cloud services are poised for robust growth, driven by rapid digital transformation and increasing adoption of AI-as-a-Service and hybrid cloud models. US companies, facing recessionary pressures are intensifying cost optimization efforts by prioritizing scalable, efficient cloud solutions and AI deployments that reduce operational expenses while enhancing productivity. This focus on cost efficiency is influencing Indian IT firms to offer optimized cloud and AI services that align with US clients' budget-conscious strategies.
Defence and railway stocks have shown a notable upward movement recently, fueled by strong government initiatives and strategic sectoral developments. Defence stocks are signaling a potential turnaround after previous corrections, supported by India's aggressive push for indigenisation and export growth. Further, Operation Sindoor has significantly boosted investor interest defence stocks, as some of the stocks rising up to 35% shortly after the conflict began. The surge reflects expectations of increased defence spending, replenishment of military inventories and export opportunities driven by India's demonstrated indigenous military strength and technological edge. Meanwhile, railway stocks also rallied strongly on the back of a significant capex push, with government budget allocations of Rs.2.62 lakh crore for railway capital spending in 2025–26 aimed at infrastructure upgrades and electrification projects.
However, given the sustained government focus on modernization, 'Make in India' initiatives and technological adoption in both sectors, the upward trend appears poised to continue in the medium term, provided macroeconomic stability and policy continuity remain intact.
The ₹ 43,400 crore promoter selloff in May warrants cautious interpretation rather than outright alarm. While the timing coincides with Nifty's 12% surge, this appears driven by liquidity dynamics rather than fundamental concerns. With FIIs and DIIs injecting Rs.80,000 crore, promoters are naturally stepping in to provide supply through block deals, as individual retail investors cannot facilitate large institutional purchases. However, the dichotomy between companies guiding strong growth while promoters dump shares at high valuations does raise questions about insider sentiment. Large-cap withdrawals such as InterGlobe ( ₹ 11,560 crore) and ITC-BAT ( ₹ 12,900 crore) may indicate portfolio rebalancing, while small and midcap promoter selling may be seen with caution and may warrant a deeper analysis. While not strictly a red warning, this pattern suggests that bulls should exercise greater caution given the current values.
Many leading brokerages have recently upgraded their Nifty-50 target for the year 2025, reflecting a bullish outlook based on fundamental analysis. This optimism is driven by strong corporate earnings growth, robust economic indicators, and favourable monetary policy with 50bps rate cut by the RBI. FIIs have also turned net buyers amid a weakening dollar index and volatile US bond yields, further supporting market sentiment. On the above thesis, we are also expecting ~11% EPS growth in Nifty-50 constituent companies to reach to ~Rs.1,300 in FY26. On this basis, we are expecting Nifty-50 to reach at 26,600 level, a further upside of 6.5% by end of 2025.
Foreign investors have shown renewed confidence in Indian markets, pumping in ₹ 4,223 crore in April followed by a record ₹ 19,860 crore in May 2025, marking the strongest inflows this year. This enthusiasm comes from a mix of positive factors: India's GDP growth surprised everyone with a strong 7.4% in the last quarter, the weakening US dollar made Indian assets more attractive and talks of a possible US–India trade deal have boosted long-term optimism. On top of that, policy changes like easing investment rules for Saudi Arabia's sovereign fund show India's commitment to welcoming foreign capital. While the near-term uncertainties such as geopolitical risks and rising US treasury yields may reverse this trend. However, India's solid economic growth and ongoing reforms will mitigate these risks and maintain strong foreign investor interest in the months ahead.
Technology and IT services are top sectors for wealth creation, driven by digital transformation and AI adoption. Renewable energy and electric vehicles benefit from strong global sustainability trends and supportive policies. The pharmaceutical and healthcare sector offers consistent growth due to innovation and export opportunities. Infrastructure development is propelled by urbanization and government projects. Financial services and FinTech are growing through digital inclusion and financial deepening. Lastly, consumer goods thrive on rising middle-class consumption and rural market penetration. Diversifying across these sectors can help investors build and preserve wealth.
As of early June 2025, the Indian rupee is stable, trading between ₹ 85.80 and ₹ 86 against the US dollar. It has strengthened slightly by 7 paise, helped by foreign money coming into the country and a soft approach by the RBI.
The RBI surprised everyone by cutting the repo rate by 0.5% to 5.5%—its biggest cut in five years. It also reduced the CRR by 1%. This shows the RBI is confident because inflation in India has fallen to about 3.16% in May, which is low and manageable.
A weaker US dollar, lower inflation in India, and cheaper oil prices have reduced India's import costs. This helps the economy since India imports a lot of oil and goods priced in dollars. Exporters, especially in IT and pharma, could benefit as their products become more competitive globally. However, their earnings in dollars may be worth less in rupees. Upcoming US job data could also affect how strong or weak the dollar remains and influence investment into countries like India.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.