Expert view: The India-US trade deal has emerged as the next big catalyst for the Indian stock market lately, but can it be enough to drive the Nifty 50 past the coveted 30,000 mark? Rajesh Palviya, Head of Research at Axis Securities, believes that the trade deal cannot be the sole trigger for driving the next leg of the upmove to 30,000. The missing link is the earnings revival.

While reaching 30,000 is possible in a strong risk-on environment, a more gradual, earnings-driven ascent seems more likely than a rapid, linear increase, said Palviya. He also shares his top sectoral bets in this market environment and how to build a portfolio amid gyrating stock market moves in this interaction with Mint. Edited excerpts:

Budget, India-US trade deal and RBI rate cuts — market has multiple triggers to digest. What is your outlook as earnings recovery remains uncertain?

Indian markets are currently navigating a delicate balance between strong macroeconomic conditions and policy support on one side, and ongoing uncertainty in near-term earnings on the other. The Union Budget prioritises sustained capital expenditure, fiscal responsibility, and measures to boost consumption. Additionally, there is optimism surrounding the trade agreement between India and the U.S., along with a supportive stance from the Reserve Bank of India (RBI), which creates a positive foundation for the markets.

However, corporate earnings growth remains inconsistent, particularly in sectors sensitive to exports and discretionary spending. In the short term, expect range-bound trading with elevated volatility until there is greater clarity on earnings. Over the medium to long term, India’s structural growth drivers remain strong. Any temporary softness in earnings could present attractive selective buying opportunities, rather than posing a threat to the overall upward trend.

Can the Nifty hit 30K this year with a trade deal in place?
A finalised India-US trade deal would significantly boost market sentiment, enhancing earnings prospects for export-oriented sectors and increasing overall market confidence. However, reaching the 30,000 mark will require more than just a single catalyst; it will need consistent earnings upgrades, steady global liquidity, and resilient domestic fundamentals.

Current valuations already reflect considerable optimism, limiting the potential for sharp near-term gains unless we see a significant acceleration in earnings in the second half of the year. While reaching 30,000 is possible in a strong risk-on environment, a more gradual, earnings-driven ascent seems more likely than a rapid, linear increase.

IPOs have slowed down in the new calendar year. Do you expect to see a robust pipeline as the year unfolds?

The limited activity in initial public offerings (IPOs) so far can be attributed to temporary factors such as market consolidation, increased valuation discipline, and issuer caution amidst volatility. This does not indicate any fundamental issues within the ecosystem. As stability returns and earnings become more predictable, we anticipate a resurgence in the IPO pipeline, particularly in high-growth sectors like manufacturing, financial services, and digital infrastructure. A more active IPO market may briefly redirect liquidity toward primary markets; however, historical trends show that this effect is typically short-lived. In the medium term, well-priced, high-quality listings can enhance market depth and attract fresh capital inflows. Ultimately, the success of these IPOs will depend more on disciplined pricing and strong fundamentals than on volume alone.

Which sectors could be the biggest bet this year?
Sectors linked to India’s domestic growth and policy priorities remain highly promising. Key areas to watch include capital goods, infrastructure, defence manufacturing, and power equipment, all of which stand to benefit from ongoing public and private capital expenditure momentum. In the financial sector, select well-capitalised banks and insurers are likely to thrive due to steady credit expansion and resilient margins. Additionally, structural manufacturing sectors such as electronics manufacturing services (EMS), specialty chemicals, and industrial automation show strong long-term potential. Furthermore, themes of consumption recovery in the automotive sector and certain discretionary segments could gain momentum as rural demand and income trends improve.

Do you see the underperforming small and midcaps reviving anytime soon?
After several strong years, small and mid-cap stocks have experienced a healthy correction due to high valuations and muted earnings. A broad recovery may take time and will likely be more focused on individual stocks rather than the entire index. Companies with strong balance sheets, pricing power, and clear earnings growth are expected to lead this recovery as investor confidence stabilises. Lower interest rates and stronger domestic demand could provide significant support, but it remains crucial to be selective. The next phase of outperformance is anticipated to favour companies with solid fundamentals over those relying solely on momentum.

For investors looking to shield portfolio from volatility, what kind of allocation would you recommend?
In times of increased market volatility, effective asset allocation is more important than attempting to time the market. It is essential to diversify your investments across equities, fixed income, gold, and cash, aligning with your risk tolerance and investment horizon. When investing in equities, consider a mix of large-cap stocks for stability and carefully selected mid-cap stocks for growth potential. Additionally, include exposure to defensive sectors and high-quality compounders to enhance resilience.
Practical steps for successful investment management include:
– Maintaining disciplined Systematic Investment Plan (SIP) contributions
– Ensuring adequate liquidity
– Avoiding the use of leverage
– Regularly rebalancing your portfolio to align risk with long-term goals.

Are defence, manufacturing and railway stocks still worth looking at despite the massive run up seen in the last few years?

The long-term trends in defence, manufacturing, and railways remain strong, supported by efforts towards indigenisation, consistent government spending, and robust multi-year order books. However, after significant price rallies, valuations have become stretched, which may lead to moderated near-term returns. As a result, the focus should shift to disciplined stock selection and identifying attractive entry points. Companies that demonstrate effective execution, maintain solid order pipelines, and show improving return ratios continue to present substantial long-term upside.

Investors should avoid chasing momentum; instead, consider market dips as opportunities to gradually accumulate shares while maintaining realistic short-term expectations. This updated version is concise, comprehensive, and well-suited for digital formats. It includes headings for easy scanning and maintains a balanced, professional tone that appeals to informed investors.

Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions.