Monthly Market Outlook June 2026 By Prateek Agrawal

Dear Investor

In this edition let us discuss

• Weak Macros may present an opportunity

• It continues to be time for alpha

  • Institutional flows in India favour the broad market and growth themes
  • Broad markets are seeing relatively stronger earnings growth vs narrow markets

• Valuations and outlook

Every crisis brings policymakers to learn from it and prepares the country to withstand the crisis much better, in future.

• How would our country prevent the recurrence of the current bad situation on account of geopolitics led high oil prices (imported energy prices), leading to stress on forex, FPI going away and INR depreciation

  • Solution could be strong electrification push on domestic energy. Coal, solar, wind, BESS, ethanol, coal gasification, gobar gas. EVs, induction cookware, etc may benefit from such transition. Equipment manufacturers of coal power, renewables may also see increased opportunities.
  • Have indigenization, higher exports. PLI schemes in new/ existing spaces. Electronics, defence
  • Focus on creating domestic pool of long-term equity money. Mutual funds, pension and insurance
  • Higher domestic defence production
  • INR depreciation may support high domestic value-added industries. Software, pharma, metals and mining, chemicals, auto components.
  • Relatively less impacted spaces: Recycling, digital and exchanges and brokers

As one would see, many of the spaces which may benefit from the macro and sentiment of the day are tail-winded spaces where growth quotient is high with only a few exceptions.

It continues to be time for alpha

• Net Institutional flows in India favour the broad market and growth-oriented themes. This makes it the Time for Alpha
  FPIs have been selling continuously in India. We think one of the key reasons is narrow spaces which offer a long period of sustained growth. While India does not have meaningful listed names in global themes like AI, it does have plays on EVs, EMS, Renewables, Defence, recycling, etc which are global themes and domestic themes like capital market which have seen momentum. However, these spaces are as yet not able to absorb the large quantum of monies invested in past growth themes like Banks and IT services, which are bearing the brunt of FPI selling. This is a big reason in the country experiencing negative long only FPI flows.

If we look at the FPI ownership, for large caps it has declined to 19.3% in March 26 vs 22.5% in March 16. In the same period, midcaps have seen a drop from 18.9% to 13.5% and small caps have seen a drop from 15.7% to 11%. Domestic institutional holdings have increased from 13.3% to 22% in large caps, 10.2% to 19% in midcaps and 9.9% to 17.7% in small caps in the same period.

This implies that while large caps may continue to see large FPI selling as their holdings is still substantial on weak macros and weakening INR, midcap and small cap spaces have already seen the worst. While domestic institutions were getting a lot of flows in large cap-oriented funds in MF, insurance and pension funds, this is changing. Already mid and small caps get more of incremental MF flows. Pension funds which were large cap oriented are also becoming more performance oriented. This may also result in relatively higher flows into broader market. The momentum of flows also implies that broader market may have the potential to perform differently from narrow large cap indices.

The mid and small cap spaces get head winded when the fund raise activity, viz selling by PE, by promoters or fresh issuance by companies, soak up liquidity. With valuations now significantly lower than peak valuations, we think this activity may remain relatively muted for some time in this space. Most of the big fund raise is being targeted in large cap space like telecom and exchanges.

The breadth of earnings has been favouring the broader market for 2 quarters now and Q4 may also see broader market deliver stronger earnings growth.

Market follows earnings growth and this again points to potential alpha generation opportunities.The growth in profits of index companies, in general, over the past 6 quarters has been patchy with very few companies delivering strong y-o-y growth for successive quarters. In the relatively new emerging spaces like capital markets, select NBFCs, EVs, digital, renewables, semaglutide ecosystem, electronics, luxury, recycling, etc, have continued to see business momentum in recent periods. Certain companies in metal & mining and software segments have continued to witness healthy growth trends in recent periods. We think with so many spaces offering growth opportunities, possibilities of alpha generation by active managers may remain strong.

Valuations and outlook
India has been amongst the worst performing markets globally and relative valuations vs global peers are at multi year lows. While earnings have expanded, Nifty has been range bound for now close to 2 years. This points to a significant valuation correction. In high earning growth spaces in mid and small, earnings growth has been stronger and valuation correction has been steeper.

We believe that as current issue of high oil prices led stress on fiscal, sorts itself out and oil prices decline again on strong supply, the bump up in Indian markets may be sharp as there is a catch-up trade. While there is a catch-up trade, certain higher growth spaces may continue to see investor interest during such periods.

Key risk is high oil prices sustaining for longer, a scenario that can take place in the event of oil wells being damaged in war or on account of back up.

Thank You,
Happy investing
May the Good Times Continue 😊

Source: MCX India, Bloomberg, MOFSL, RBI, NSE Indices. Data as on May’26.

Disclaimer:

This note/document/video has been issued based on internal data, publicly available information, and other sources believed to be reliable. The information contained herein is for general purposes only and does not constitute a complete disclosure of every material fact. These statements are based on current market conditions, which may change, and past performance is not indicative of future results.

The Stocks/Sectors mentioned herein are for explaining the concept and shall not be construed as investment advice or a recommendation. The information/data herein alone is not sufficient and shouldn’t be used for the development or implementation of an investment strategy. The views expressed above are those of the MD and CEO of the AMC and are based on current market conditions and informational purposes only.

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