Nifty 50 index is currently trading at an FY27E price-to-earnings multiple of 19.5x, with the discount to its long-term average largely narrowing.AI Quick ReadThe Indian stock market witnessed a steady recovery in the month of April, with the benchmark Nifty 50 rebounding nearly 9% from the lows of April 2. The upmove in the domestic equities came despite persistent geopolitical uncertainty, as the US-Iran war remains unresolved and a reopening of the Strait of Hormuz continues to be delayed.
While analysts broadly remain optimistic about a potential US-Iran peace deal in the coming weeks — viewing the current volatility as transitory — Emkay Global has flagged emerging risks to the market’s near-term trajectory.
The brokerage believes that stretched valuations, coupled with the possibility of a fuel price hike due to higher crude oil prices, could trigger a short-term correction.
The recent rally in the Nifty 50 appears to have factored in a US-Iran ceasefire scenario while overlooking the persistence of elevated energy prices. As a result, strategists at Emkay Global believe the valuation comfort has diminished.
The Nifty 50 index is currently trading at an FY27E price-to-earnings multiple of 19.5x, with the discount to its long-term average largely narrowing.
“We remain confident about the FY27/FY28 earnings recovery. However, we expect Q1FY27 to be soft – already off to a weak start, with ~7% of our coverage universe missing forecasts so far,” Emkay Global said in a report.
The brokerage cautions that the ongoing rally may lose momentum in the short term, with downside risks emerging if the Strait of Hormuz situation remains unresolved over the next 7–10 days and fuel price hikes materialize.
The divergence between domestic institutional investors (DIIs) and foreign portfolio investors (FPIs) has widened, with the gap in BSE 500 holdings increasing by 90 basis points to 154 basis points. This trend was driven by FPI outflows of $14.2 billion in Q4FY26.
Sectorally, FPIs have cut weights in Financials and Technology, and reallocated to Materials, Industrials, and Healthcare.
“After the US-Iran deal, India will tick two of the three boxes that determine FPI flows: earnings growth and currency outlook. However, valuations will remain a challenge, as India continues to trade at a premium,” Emkay Global report said.
The brokerage expects FPIs to pause their aggressive selling through the remainder of 2026, although a meaningful resurgence in inflows may be contingent on valuation moderation.
Emkay Global has added ICICI Prudential Asset Management Company Ltd to its model portfolio, citing the long-term structural growth in capital markets. The firm expects retail participation in equities to continue expanding over the coming years.
The portfolio remains aligned with a base case of normalising crude oil prices. The brokerage has chosen not to recalibrate its positioning in response to short-term developments such as potential fuel price hikes, maintaining a long-term perspective amid near-term volatility.
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