Narrow rally, heavy promoter selling still a concern
Bagga highlighted that while headline indices hit record highs, 20 Nifty stocks are still below their previous peaks, and a majority of the broader market remains 10% under last year’s highs.
More importantly, he flagged massive promoter and PE fund selling, noting that a large portion of this year’s blockbuster IPOs were actually offers for sale.
“Promoters are selling and retail investors are giving them an exit — not a sign of a strong market,” Bagga cautioned.
FIIs could return — but only with better earnings and a stable rupee
Bagga said domestic investors (DIIs) have kept the market afloat, but the next leg depends on foreign inflows.
For FIIs to return in size, India needs:
- Stronger earnings growth (mid to high double digits),
- Stable currency, and
- Resolution of the India–US tariff dispute.
He noted that India has been Asia’s worst-performing currency in 2025, hurting foreign returns.
Rupee outlook: Mild depreciation likely, not a crisis
India has historically been on a depreciation cycle, Bagga said, and investors should factor in ~3% annual rupee weakness, which FIIs already account for.
However, he does not anticipate a deeper slide thanks to falling crude prices, lower oil intensity in GDP and growing renewables adoption.
Is the rally sustainable? Bagga stays cautious
While bullish on India long term, Bagga remains cautious in the near term due to:
- Expensive valuations
- Weak earnings momentum
- Promoter and PE stake sales
- Lagging nominal GDP growth
- Potential risk from a China rebound.
“We are not out of the woods. Earnings must deliver. A 17–18% growth is needed to justify valuations.”
He also noted that India remains behind many global markets in investor preference, despite positive sentiment.
Investment strategy: Stay invested, stay diversified
Bagga advises investors to:
- Hold domestic-focused sectors: BFSI, consumption, infra-linked themes
- Use multicap and multi-asset funds for stability,
- Allocate selectively to export-linked sectors (textiles, pharma, IT) to benefit from potential FII return and tariff resolution.
He expects private capex to accelerate only by 2026.