NEW DELHI: Dalal Street is having a rough ride in 2026, with the Nifty50 falling 13% this year. The fall may tempt investors to buy stocks at lower prices, but is it the right time to jump in?According to Thyagesh Baba, non-executive director at Spark Capital Advisors, slowing economic growth, elevated crude oil prices and stretched valuations could continue to cap market returns.The Nifty50 is heading for its worst annual performance in more than a decade, following a near threefold rise over the past 10 years. For investors eyeing the market dip as a buying opportunity, the big question is whether companies can sustain earnings growth and whether an improvement in market conditions can pave the way for stronger returns.Speaking to Reuters on Tuesday, Baba said that the index’s outlook for next year would hinge on sustained earnings growth, foreign investors returning after record outflows, easing crude prices and a revival in private investment.Though he did not give a specific target for the market, the expert indicated that investors should pay closer attention to companies’ ability to deliver earnings growth than expect widespread gains from higher valuations.
Is it time to buy?
The stock market’s weak performance alone may not be a sufficient reason to buy, given the challenges that remain. Slowing growth, high oil prices and stretched valuations could limit the scope for returns even after the correction.Earnings performance could offer investors a more useful indicator. Nifty 50 companies are expected to report 20% profit growth in the September quarter, their fastest pace in three years. However, Baba said investors who had grown accustomed to annual earnings growth of 20%-25% should recognise that even 16% growth would be robust in an economy recording nominal growth of 10%-12%.This puts the focus on whether companies can deliver sustainable profits rather than on expectations of a broad-based rise in stock valuations.
What could support the market?
A return of foreign investors could be an important factor in the market’s outlook, particularly after record outflows. A moderation in crude oil prices and a revival in private investment are also among the conditions Baba identified as relevant to the Nifty’s performance next year.He also pointed to improvements in India’s banking system and corporate balance sheets. Years of regulatory tightening have left the banking system healthier, while companies have reduced leverage and become more disciplined in allocating capital.“The old model of borrowing at 18%-20% to fund businesses generating 11%-12% returns on capital has largely faded,” he said.These improvements provide a positive aspect to the outlook, although Baba’s assessment of future market returns remains tied to earnings delivery and the broader investment environment.The 13% decline in the Nifty50 does not, by itself, establish whether the market is ready for a sustained recovery. According to Baba, future returns are likely to depend more on companies delivering earnings growth than on broad-based valuation gains.Therefore, investors looking to buy after the market fall should watch whether companies can sustain their earnings, foreign investors return, crude oil prices fall and private investment picks up. These factors will shape the market’s performance next year, while slower economic growth and high stock valuations could limit returns.(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of The Times of India)
