From Geopolitics to Growth: Why Indian Markets Are Looking Past the Noise

PL Capital sees multi-sector revival on earnings momentum, defence capex, and macro tailwinds

Mumbai, 23 May – After months of foreign selling and geopolitical uncertainty, Indian equities are firmly back in rally mode. The Nifty 50 has surged 10% in just six weeks, shaking off tariff war anxieties and global slowdown fears. The catalyst? A convergence of better-than-expected corporate earnings, a softening inflation print, policy stimulus, and strong tailwinds for domestic capex.

Prabhudas Lilladher’s latest India Strategy report highlights that markets appear to have digested global risks — including the fallout from “Operation Sindoor,” sticky U.S. interest rates, and softening Chinese growth — and are now focused on domestic revival themes.

“Markets seem to have digested the uncertainty related to global tariff wars on hopes of lesser disruption and trade agreements by major economies,” the report notes.

Q4 Earnings Beat Revives Market Confidence

The Q4FY25 earnings season has been stronger than forecast, providing a solid base for market optimism. Around 72% of PL’s coverage universe has reported results — and profitability metrics are well above consensus.

EBITDA surprises came largely from Oil & Gas (+30.5%), Chemicals (+18.1%), Banks (+11.1%), Cement (+10.7%), Durables and Capital Goods (both above +10%). Meanwhile, EMS and select consumer plays missed on topline but held margins.

“Although 4Q results season started with muted expectations, the reported numbers so far show better-than-expected corporate performance,” the report states.

Macro Setup Turns Supportive

India’s macro indicators are showing clear signs of a turnaround. Consumer inflation is easing, agricultural output is robust, and monsoons are forecast to be normal — creating conditions ripe for demand revival.

Add to this the expected ₹2.5 lakh crore boost from FY26 personal tax cuts and a potential 50bps rate cut from RBI, and the growth narrative strengthens further.

Defence and Infra in the Spotlight Post ‘Operation Sindoor’

Geopolitical realities have pushed defence and infra to the top of the policy agenda. PL expects a strategic capex surge in indigenous military capability, energy resilience, and smart infrastructure.

“Operation Sindoor has redefined the use of cutting-edge air warfare, missiles and drone technology globally, and reinforces the urgency for ‘Make in India’ across defence and infrastructure,” the note highlights.

Key investment themes include: significant allocation to drone systems, missile and radar technology, production acceleration of Tejas fighter jets, and a possible third aircraft carrier to counter growing naval presence in the region. Hydropower and pumped storage projects (PSPs) in Jammu & Kashmir, previously stalled due to the Indus Water Treaty, are now being revived. In addition, there’s an expected push for smart grid technology and digital infrastructure to secure and remotely manage India’s energy networks.

Sector Outlook: Where Growth Could Accelerate

PL sees demand recovery becoming visible in the second half of FY26, driven by both rural and urban consumption. Sectors expected to benefit the most include autos, consumer durables, QSR, apparel, and personal accessories — all of which are likely to ride on the combined effects of tax savings, falling interest rates, and stable input costs.

Capital goods and defence are poised for structural growth, supported by policy and strategic mandates. In healthcare, hospitals and pharma companies continue to report strong operating performance, while telecom stands to gain from the next leg of tariff hikes and improved ARPU metrics. Travel, airlines and hotels are also set to benefit from seasonal demand and easing costs.

Stock-Specific Actions

Upgrades:

• Ratings: Tata Steel, Persistent, Pidilite, Zee
• Estimates: RIL, HAL, BPCL, Union Bank, SRF
• Target Price Increase: ICICI Bank, Mangalore Ref, Vinati, Eris

Downgrades:

• Ratings: HPCL, BHEL, Kaynes, Carborundum
• Estimates: BoB, Kajaria, LTI Mindtree, Dr Reddy
• Target Price Cuts: Infosys, Voltas, VIP, Cyient

Bottomline:

Despite uncertainties over global trade, the slowing Chinese economy, and steady U.S. rates, Indian markets are drawing strength from within. Earnings are recovering, policy capex is accelerating, and inflation is under control. With RBI likely to ease policy further and a rural-urban consumption lift-off expected, PL sees ample room for select sectors and stocks to outperform.

Read The full Report Here

Authored by Amnish Aggarwal, Head of Research, Prabhudas Lilladher