ETMarkets Smart Talk | Nifty50 can hit 28,615 if crude cools, FIIs return: Rajesh Palviya on wealth creation

Indian equities are entering the second half of 2026 at an important inflection point. After a first half dominated by geopolitics, elevated crude prices and heavy FII selling, the focus is now shifting back to corporate earnings, domestic liquidity and the broader growth outlook.

With benchmark valuations having corrected closer to historical averages, investors are once again looking for opportunities to create long-term wealth.

But what could trigger the next leg of the market rally? According to Rajesh Palviya, Head – Research, Axis Direct, a sustained cooling in crude prices, a reversal in foreign investor flows and double-digit earnings growth could pave the way for the Nifty50 to climb towards 28,615.


He believes the second half could increasingly become an earnings-driven market, even as global macro risks remain in the background.

In this edition of ETMarkets Smart Talk, Palviya shares his H2 market outlook, explains why he prefers largecaps over midcaps, identifies his top sectors for the next 12 months, and decodes how investors should approach market dips.

He also discusses why $100 crude could be a red line for Indian equities and where investors could look for the next phase of wealth creation. Edited Excerpts –

Q) H1 2026 was largely dictated by geopolitics, crude, and FII flows. Do you believe H2 will finally be an earnings-driven market, or can global macro still override domestic fundamentals?

A) Macro external factors unmistakably dominated H1 CY2026. Tensions in West Asia pushed Brent crude above $100/bbl, triggering foreign institutional investor (FII) outflows of nearly ₹2.25 lakh crore. However, as geopolitical friction eases and crude settles toward more manageable levels, H2 is primed to transition into an earnings-driven market.

With benchmark valuations correcting to around 18x one-year forward earnings (near long-term historical averages), market focus is pivoting to bottom-line execution.

While global macro—specifically US Fed rate trajectories and commodity spikes—remains a background risk, domestic fundamentals are taking centre stage. Strong Q1FY27 earnings visibility, robust DII/SIP support, and recovering rural demand will ensure that corporate earnings, rather than global macro headlines, drive sector leadership in H2.

Q) Axis Securities has a December 2026 Nifty target of 27,200 in its near-term scenario, while the more optimistic scenario sees 28,615, according to Axis Market Playbook report. What are the two or three biggest triggers that could take the Nifty towards those levels?

A) Achieving our Base Case target of 27,200 (PE 19.5X ) or Bull Case target of 28,615 (PE 20.5X) hinges on three critical triggers:

Sustained De-escalation & Soft Crude: Permanent resolution around the Strait of Hormuz chokepoint leading Brent crude to stabilise within the $70 --$80/bbl band, directly reducing headline inflation and easing input cost pressures.

FII Re-engagement: Reversal of foreign outflows into potential net inflows of ₹1.42–₹1.89 lakh crore over a 3–4 month period as India’s valuation premium over Emerging Markets normalises.

Double-Digit Earnings Delivery: A clean 12–14% FY27E Nifty EPS growth trajectory, fueled by financial credit recovery and capital expenditure completion.

Q) You describe H2 as a “buy-the-dip-with-discipline” market rather than a “chase-the-rally” market, according to Axis Market Playbook report. What would qualify as a good dip, and where should investors resist the temptation to average?

A) A "good dip" constitutes a technical and valuation reset: a 3% to 5% market pullback led by short-term sentiment or global macro headlines that brings quality names closer to key moving average supports without damaging the structural earnings thesis. On valuations, entry points where forward P/E ratios approach historical averages present disciplined accumulation windows.

Conversely, investors must resist averaging down in:

Crude-sensitive sectors with weak pricing power (e.g., Paints and select FMCG staples) facing prolonged margin compression.

Over-leveraged companies or low-quality small caps where valuations remain rich despite failing to deliver bottom-line execution.

Export-dependent segments vulnerable to lingering global tech spending cuts or trade tariffs.

Q) The report calls crude oil the “market's compass.” At what Brent price does the India equity story start becoming uncomfortable again? Is $100 the real red line?

A) Yes, 100$/bbl is unequivocally the red line for Indian equities. India imports over 80% of its crude requirements, making energy prices the ultimate macro transmission mechanism.
Below $80 - $85/bbl: Macro conditions remain in a comfort zone with stable CAD, controlled CPI inflation, and strengthening INR.

Above $90 - $95 /bbl: Inflation expectations begin ticking up, margin pressure mounts for chemical/paint/auto sectors, and the RBI loses room for policy easing.

At or above $100/bbl: The equity thesis becomes uncomfortable. It widens the Current Account Deficit beyond 3.5% of GDP, reignites FII selling, pressures the Rupee toward 100/USD, and risks triggering corporate earnings downgrades.

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Q) Midcaps and smallcaps significantly outperformed largecaps in H1. Is this the beginning of a structural broadening of the market, or has the rally already made parts of the mid- and smallcap universe too expensive?

A) The outperformance of the broader market in H1—with the Nifty Smallcap 250 gaining 6.2% while the Nifty 50 corrected—reflects both a structural broadening and localised valuation stretch. Domestic retail and institutional flows (via SIPs) provided an unprecedented liquidity cushion that insulated mid and small caps from FII-heavy large-cap selling.

However, blanket outperformance is ending. While structural themes like defence, capital goods, and manufacturing continue to justify strong multiples, speculative pockets in the broader market have become expensive. Going forward, returns will strictly reward stock selectivity tied to balance sheet strength, execution, and verifiable earnings delivery.

Q) If you had to choose between largecaps and midcaps for the next 12 months, where would you see the better risk-reward—and why?

A) For the next 12 months, Largecaps offer a superior risk-reward profile.

The rationale is clear:

Valuation Margin of Safety: The sharp 8-9% pullback in large-cap indices during H1 has restored valuations to attractive long-term averages 18 times 1-yr forward P/E), whereas select midcaps continue to trade at elevated multiples.

FII Capital Flows: Any global risk-on rally or FII flow reversal will disproportionately flow into liquid, large-cap, index-heavy stocks (particularly Large Banks and IT).

Earnings Resilience: Largecaps possess stronger balance sheets and pricing power to navigate macro volatility or commodity price fluctuations.

Q) Should investors now focus less on headline quarterly numbers and more on management commentary around demand, margins, capex, and order books? Which of these indicators matters most to you?

A) Headline quarterly numbers reflect backward-looking historical performance, whereas forward-looking guidance provides visibility in a transition market. Investors must prioritise management commentary over backward-looking earnings beats.

Among all indicators, Order Book Visibility & Execution Capability matters the most. A robust, executable order book (particularly in Capital Goods, Defence, Power, and Infrastructure) offers high revenue visibility, shielding companies from short-term cyclical headwinds. Following that, Margin Trajectory guidance is crucial to verify if softening input costs or product pricing power are successfully translating into expansion.

Q) You are positive on Financials, Defence, Capital Goods, Power & Utilities, Telecom, Auto, and Healthcare. If you had to pick just three sectors for the next 12 months, which would make the cut?

A) Our top three high-conviction sectoral picks for the next 12 months are:

Financials (BFSI): Anchored by credit growth acceleration (17-18%), healthy asset quality, and stabilising NIMs following prior rate cuts.

Capital Goods & Defence: A multi-year structural play backed by government capex, strong indigenisation mandates ₹2 lakh crore domestic defence production targeted), and massive export order pipelines.

Power & Utilities (Grid/Energy Security): Driven by record peak power demand 270.8GW, massive transmission grid expansion, and surging power requirements from data centres and manufacturing.

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Q) Defence and Power are being positioned as structural themes rather than just cyclical trades.
How much of the long-term opportunity is already reflected in valuations?

A) While short-term price run-ups have priced in immediate earnings, long-term multi-decade structural value remains underappreciated.

In Defence, order-to-sales ratios remain exceptionally strong, with visibility extending across 5–7 years due to policy mandates like Atmanirbhar Bharat and a ₹40,000 crore pipeline of rising exports.

In Power & Transmission, the multi-year transition toward renewables, nuclear capacity, and data-centre grid loading guarantees sustained capex through FY32. Elevated multiples are supported by high earnings compounding (20%+ CAGR); hence, corrections in these themes present structural buying opportunities rather than cyclical exits.

Q) If you were advising an investor with a five-year horizon today, would you deploy money immediately, stagger investments through SIPs, or wait for a deeper correction?

A) For a five-year horizon, waiting passively on the sidelines for a "deeper correction" often leads to missed opportunity costs. Benchmark valuations have already corrected to reasonable levels.

The optimal deployment strategy is a Hybrid Staggered Approach:

Deploy 40-50% immediately into high-conviction, valuation-comfort large caps (Financials, Large Capital Goods/Power) to capture current entry levels.

Stagger the remaining 50-60% via Systematic Transfer Plans (STP/SIPs) over a 3-to 6-month window. This strategy leverages potential market volatility while compounding across long-term structural wealth creation cycles.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)