Indian equities may offer a more attractive risk-reward proposition after a prolonged period of consolidation and valuation correction, according to Motilal Oswal Financial Services. In its latest India strategy report dated September 24, 2026, the brokerage noted that the Nifty-50 has declined 12% from its September 2024 peak, while broader market performance has remained range-bound. However, the headline indices tell only half the story - 77% of Nifty 500 stocks have fallen more than 15% from their respective all-time highs, highlighting the extent of correction across individual stocks. As per Motilal Oswal, persistent geopolitical and macroeconomic headwinds have weighed on market sentiment, but underlying economic and corporate fundamentals remain resilient. The brokerage believes that cooler valuations, improving earnings, strong domestic liquidity and resilient economic fundamentals have strengthened the risk-reward for Indian equities. The correction becomes sharper when individual stocks are measured against their respective record levels, with 47% of Nifty 500 constituents falling more than 30% from their all-time highs, while only 23% have declined by up to 15% from their record highs.
The latest analysis reveals the stark divergence within the Nifty 50 constituents, with only 20 of the 50 Nifty stocks delivering positive returns since September 2024. Among the biggest laggards, Tata Consultancy Services declined 51%, followed by Trent which fell 47%, while Infosys dropped 46% over the period. Other major decliners included ITC and Wipro at 45% and 39% respectively, Jio Financial Services at 34%, Hindustan Unilever at 34%, HCL Technologies at 30%, Power Grid at 26%, and Asian Paints at 25%. On the positive side, Eicher Motors emerged as the biggest gainer, rising 50% since September 2024, followed by Shriram Finance at 39%, Hindalco at 37%, Bharat Electronics at 36%, Bajaj Finance at 34%, Titan at 30%, JSW Steel at 29%, Apollo Hospitals at 27%, SBI at 24%, and Adani Ports at 23%. The report described this trend as a period of significant divergence in sector and stock performance, with the weakness concentrated across several large-cap names.
The market correction has created significant valuation discounts across sectors, with two-thirds of Nifty 50 constituents currently trading at a discount to their long-period average (LPA) valuations. According to Motilal Oswal's latest India Valuations Handbook, Private Banks, Technology, Consumer, Oil & Gas, Retail, NBFCs, Consumer Durables, Chemicals, Cement, Telecom, and Real Estate are the sectors that are trading at a discount. Conversely, Healthcare, PSU Banks, Capital Goods, Utilities, Metals, Capital Markets, Defense, EMS, Logistics, and Infrastructure are the sectors that are trading at a premium. Among individual stocks, Tata Consultancy Services trades the cheapest among all Nifty 50 constituents, followed by Bharti Airtel, Apollo Hospitals, Trent, Infosys, and HDFC Bank. The Nifty 50 trades at a 12-Month Forward Price-to-Earnings (P/E) multiple of 17.2x, which is an 18% discount compared to its 10-year historical average of 20.9x. The Nifty's trailing twelve months P/E stands at 19.8x, which is a 15% discount to its historical average of 23.2x.
Beyond benchmark indices, mid-to-large cap companies are experiencing significant challenges in 2026. According to The Economic Times analysis, more than half of India's mid-to-large tier companies with market capitalisation above ₹1,000 crore have faced losses in 2026. The total sample includes 920 companies with market caps of ₹1,000 crore and above that have five-year valuation data, of which 51% or 466 companies have not yielded returns so far in the current year. Additionally, one out of every seven companies, 132 to be precise, has fallen by 25% or more since the beginning of the year. Eight companies have experienced particularly severe declines, with Rajesh Exports, KPIT Technologies, Ugro Capital, GRM Overseas, CE Info Systems, Fino Payments Bank, Ramky Infrastructure, and KEC International wiping out over half of their market capitalisation in just nine months. These companies have been dragged below five-year historical averages due to regulatory issues, funding costs, and margin pressures. Rajesh Exports faced regulatory intervention banning its promoters from the securities market, while Fino Payments Bank suffered from governance issues. Ugro Capital took a hit amid escalated funding costs and high operating expenses, and KPIT Technologies faced project delays and lower tech budgets from key clients.
The market has witnessed significant sector rotation during the consolidation period. Defence emerged as the leading sector with a 19% gain over the past two years, followed by Metals at 14% and PSU Banks at 10%, while Technology declined 18%, Consumer fell 17%, Media dropped 15% and Real Estate declined 12%. The Nifty Midcap-150 has remained broadly flat, while the Nifty Smallcap-250 has declined about 1% over the period. Among the leading performers, Motilal Oswal highlighted Eicher Motors gaining 50%, Shriram Finance at 39%, Hindalco at 37%, Bharat Electronics at 36% and Bajaj Finance at 34%. The brokerage noted that sectoral rotation towards segments with greater mid- and small-cap representation helped cushion the broader market even as several traditional large-cap sectors and stocks underperformed. This sector rotation reflects changing investor preferences amid global uncertainties and domestic policy shifts, with the sharp sectoral rotation towards segments with higher mid- and small-cap representation helping SMIDs outperform and cushion the impact of a sharper drawdown in large-caps.
Despite market weakness, earnings growth remains a key support for Indian equities. Motilal Oswal estimates around 16% PAT CAGR for both the MOFSL Universe and the Nifty over FY26-28E. The earnings recovery is expected to be stronger across the broader market, with earnings CAGR of 16%, 17% and 27% for Nifty 50, Nifty Midcap-150 and Nifty Smallcap-250 respectively over FY26-28E. The brokerage projects that around 70% of Nifty-500 companies are expected to deliver more than 15% earnings CAGR over the next two years, compared with 48% in the preceding two years, indicating a broadening earnings recovery. The relatively higher earnings growth expected in midcaps and smallcaps is one reason Motilal Oswal expects market performance to remain firmly bottom-up, with the 7.8% GDP print in Q1 FY27, robust GST collections, healthy credit growth, strong auto volumes, and the steady recovery in corporate earnings from the FY25 lows indicating underlying economic strength. However, geopolitical uncertainties in West Asia have resulted in highly volatile energy prices, raising logistics and commodity costs globally, with India being particularly susceptible as a net energy importer.
