Nifty 50 is unlikely to breach the 25,000-mark on the upside or fall below 22,000 on the downside, according to Manish Sonthalia, Chief Investment Officer at Emkay Global Financial Services. Despite ongoing turbulence, including elevated U.S. yields and foreign institutional investor (FII) outflows, the Indian market's immediate movement is expected to remain rangebound. "Near-term 25,000 on the upside looks difficult to get breached, and 22,000 on the downside gets difficult to breach," he said.

The reasoning, Sonthalia explained, is grounded in earnings expectations and valuation metrics. He noted that the Nifty's projected earnings per share (EPS) for FY26 and FY27 are around 1,150 and 1,325 points, respectively, averaging approximately 1,230 to 1,240. Applying a median price-to-earnings (P/E) multiple of 18, consistent with India’s decade-long average, translates to a fair market level near 22,000. “Sustaining a 20x multiple or higher on a fundamental basis looks difficult near term,” he added.

However, looking beyond the immediate horizon, Sonthalia expects the second half of FY2026 to show stronger earnings growth. "We have a low base effect, favorable macroeconomic conditions, and a consumption boost coming from income tax breaks," he explained. "With the 8th Pay Commission recommendations expected in April 2026, government employees' discretionary spending should also increase, supporting consumption," suggested Sonthalia.

Shift from investment to consumption

Sonthalia also highlighted a structural shift in India’s growth drivers, with consumption gradually overtaking investment as the dominant theme. While fiscal discipline has kept the deficit at 4.8% of GDP in FY25 with a targeted decline to 4.5% in FY26, Sonthalia argued that "expansion of the fiscal deficit is always good for growth, while shrinkage is not."

Post-pandemic government spending had focused heavily on investments, with capital expenditure reaching nearly Rs 10 lakh crore (approximately 3% of GDP) in FY25. However, "as fiscal deficit shrinks, and tax breaks put more money in consumers’ hands, the pendulum is likely to swing toward consumption," he said.

Sectors to Watch: Consumption, BFSI, Pharma, Metals, Defense Tech

Sonthalia identified consumption sectors, including discretionary spending, BFSI (banking, financial services, and insurance), and pharmaceuticals, as attractive due to favorable valuations and strong growth potential. He pointed out that India's pharmaceutical industry is poised to benefit from opportunities in GLP-1 and semaglutide therapies.

Metals stand to gain from expected depreciation of the U.S. dollar, benefiting export-oriented firms. Emerging sectors such as electronics manufacturing services (EMS) and semiconductors also have long-term potential but require careful valuation assessment.

Regarding defense technology, Sonthalia cautioned that while the recent surge in defense stocks — partly fueled by emergency procurement under 'Operation Sindoor' — has created momentum, valuations remain frothy. "The narrative is strong, but fundamentals need to catch up," he said, emphasizing the need for order book growth and profitability before valuations can be justified.

Dollar depreciation to support flows

On the global front, Sonthalia expects the U.S. dollar to depreciate due to domestic challenges and refinancing pressures. “Assets will move out of the U.S. dollar, and emerging markets like India stand to benefit,” he said.

This outlook is supported by narrowing spreads between U.S. and Indian 10-year government bond yields, which have shrunk to record lows of 1.6 percentage points. A potential rate cut by the U.S. Federal Reserve could compress this further to near 1%, making Indian fixed income more attractive to foreign investors.

Sonthalia added, “The rupee is on a strengthening path, which helps imports, foreign direct investment (FDI), and foreign institutional investor (FII) flows. After years of selling due to a weak rupee, FIIs are now looking favorably at India.”