$4 billion CIO Nimesh Chandan spots 4 bullish signals for Indian stocks. What changed?

India’s stock market may be approaching a broader phase of recovery as four key cycles of macro, earnings, credit growth and market sentiment begin to move in the same direction, according to Nimesh Chandan, CIO of Bajaj Finserv AMC, which manages assets worth around $4 billion.

Chandan said the economic cycle, business and profit cycle, credit cycle and sentiment cycle were all showing signs of improvement. The shift could create a more supportive backdrop for Indian equities, particularly if earnings momentum sustains and external uncertainties ease.

Four cycles begin to align

1) Economic cycle: Chandan’s view that the economic cycle is turning up is supported by a strong start to FY27. India’s real GDP growth accelerated to 7.8% in Q1 FY27, up from 6.9% a year earlier, while real GVA grew 8.2%. Investment growth rose to 11.9%, household consumption increased 7.1% and exports grew 12%. The data suggests that domestic demand and investment are providing a stronger foundation for the market’s next phase.

2) Business and earnings cycle: The earnings cycle is showing early signs of recovery. Nifty companies reported 18% year-on-year (YoY) profit growth in Q1 FY27, the strongest in 10 quarters. The improvement was also visible beyond the benchmark: excluding oil marketing companies, the broader set of companies recorded 18% sales growth, 15% EBITDA growth and 22% profit growth. Large-cap earnings rose 21%, while mid-cap and small-cap profits grew 23% and 31%, respectively. However, the earnings growth was concentrated, with the top five contributors accounting for 60% of the increase in Nifty profits.

Chandan’s investment approach focuses on identifying companies that can grow profits over the long term, rather than simply tracking short-term movements in share prices.

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3) Credit cycle: The credit cycle is gaining traction across the economy rather than being restricted to one segment. RBI data showed bank credit growth of 18.3% year-on-year as of Aug. 15, 2026. Official data also showed credit to industry growing 20% and credit to services rising 22.9% in July. A sustained pickup in lending would support consumption, capacity expansion and working-capital demand, benefiting banks, NBFCs, capital goods companies and infrastructure-linked businesses.

4) Sentiment cycle: The sentiment cycle is beginning to improve after a period of pressure from global uncertainty, oil prices and foreign selling. Chandan pointed to improving flows as an early sign of a sentiment catch-up. Foreign investors had bought more than $10 billion of Indian debt so far in 2026, while in the ongoing September quarter, FIIs have poured in around $4 billion into equities. In August, domestic equity mutual fund inflows rose 19% month-on-month to Rs 29,328 crore while SIP inflows hit a record high of Rs 32,297 crore. The flood of IPOs on Dalal Street is also indicating how the sentiment is turning. This Wednesday saw 6 IPOs opening on the same day, a lineup not seen in the last 3 decades.

Chandan’s framework suggests that an improvement across all four cycles could support wider participation and open up opportunities across market cap categories and sectors.

Together, the four cycles could create a more favourable environment for Indian stocks. But Chandan also cautioned that markets will not have every indicator working in their favour at the same time.

“In any market, you won’t find all the boxes blue,” he said. “There is always some concern or the other is always there. But if you see, the majority of the issues are favouring India.”

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Largecaps offer valuation comfort

Chandan said largecap stocks had reached “very reasonable valuations”. That could give investors a more balanced opportunity set after periods in which market leadership was concentrated in specific pockets.

He also pointed to the market’s ability to manage risks from elevated oil prices. Although the Middle East crisis and oil price volatility remained concerns, India had so far managed the impact by diversifying its sources and passing on some of the increase in oil prices, he said.

El Niño was another risk being monitored. Chandan said rainfall conditions had improved over the preceding months, reservoir levels had held up and the situation did not appear to point to a particularly weak agricultural year.

The combination of improving economic conditions, a recovering credit cycle and better sentiment could support a broadening of market participation. But Chandan’s approach remains focused on businesses that can convert these macro trends into sustainable profit growth.

Looking for tomorrow’s index leaders

Chandan’s megatrend framework is designed to identify companies that could become future market leaders before they are fully recognised by the broader market.

“Rather than going with the flow, investing in megatrends means anticipating the flow,” he said, while contrasting this approach with the way benchmark indices are constructed. According to Chandan, indices tend to look backward: companies are added after they have already grown significantly, while businesses facing a sustained decline leave the index only after the deterioration has become evident.

“Megatrends tries to look at the winners and losers from a forward lens,” he said, focusing on companies that have the potential and capability to become large companies and eventually enter the index.

The process involves identifying a trend, assessing whether a company can benefit from it, evaluating its business model and management, conducting financial due diligence and then examining valuation.

Potential alone is not enough, Chandan said. A company must be a net beneficiary of the trend, possess a business model that can monetise it and have management capable of executing the opportunity. The financial profile also matters because some megatrends require substantial upfront capital expenditure or have long gestation periods.

AI, power and EVs among long-term themes

Chandan’s long-term opportunity set encompasses several themes that he believes are still in the early stages of development.

These include semiconductors, aerospace, defence, physical artificial intelligence and robotics. He also sees opportunities in Indian companies that supply data centres, as well as businesses that can use AI to improve productivity, revenue growth and operational efficiency.

Data centre expansion is also strengthening the case for power-related investments, he said. The growth of data centres, electrification of transport, renewable energy and other forms of energy transition is expected to require additional investment in generation, transmission and distribution.

Power has remained a strong theme for the strategy, Chandan said, with the transition toward renewables and more distributed systems requiring further capital expenditure.

Electric vehicles are another long-term theme. Chandan said the shift from internal-combustion engines to electric vehicles was becoming more visible, particularly in India’s two-wheeler market.

He also identified contract research and manufacturing as an important pharmaceutical opportunity. The US Biosecure Act could encourage international pharmaceutical companies to shift research and development services from China to India, he said. Every 2.5% shift in market share from China to India could represent a $1 billion opportunity, according to his presentation.

Consumption remains a durable trend

Chandan described Indian consumption as one of the strongest and longest-lasting megatrends. As per-capita income rises and households move into higher income categories, discretionary spending is expected to grow faster than the overall consumption basket.

Food and grocery spending may continue to rise, but discretionary consumption could increase at a faster pace. Chandan said this was creating opportunities in areas such as quick commerce, where he expects continued growth over the next few years.

The broader shift in India’s income pyramid is central to this thesis. As more households move into higher income categories, the composition of consumption changes, creating new profit pools for businesses serving discretionary demand.

For Indian stocks, Chandan’s framework points to two simultaneous developments: a near-term improvement in four market cycles and a longer-term rotation of profits toward new industries and business models.

The market outlook, in his view, is therefore not simply about predicting the next index move but about identifying where economic growth, capital expenditure, technology adoption and changing consumer behaviour are likely to create the next generation of corporate winners.

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