Ambit’s Nitin Bhasin expects moderate Nifty returns over the next 12 months, sees elevated valuations, foreign-investor caution, crude volatility and a heavy supply of new equity as key market challenges

Indian equities may be entering a phase in which domestic liquidity remains the primary support for the market, while foreign investors become increasingly selective, according to Nitin Bhasin, head of institutional equities at Ambit.

In an interview with Business Standard, Bhasin said he expects the Nifty to remain within a relatively narrow range over the next 12 months, with returns potentially limited to low single digits. He also argued that several major market risks, including West Asia tensions, crude-oil volatility, uncertainty around US trade policy and continued equity supply, have not been fully reflected in valuations.

His comments come at a time when Indian equities are navigating a combination of elevated valuations, uneven earnings growth, persistent foreign-investor selling and strong domestic participation.

Nifty Returns Could Remain Moderate

Bhasin expects the Nifty to remain broadly range-bound over the coming year.

He said the index could potentially move around 5 per cent either way from current levels, implying that investors should keep return expectations moderate. In his assessment, Nifty returns over the next 12 months could be in the 0-5 per cent or 0-7 per cent range.

His outlook is based partly on the view that earnings growth is unlikely to translate one-for-one into index returns because market valuations are already elevated.

Bhasin expects earnings growth for the Nifty 100 to remain around 12-13 per cent in FY27 and FY28, excluding the oil and gas sector. For the broader Nifty 200, he sees earnings growth potentially reaching 14-15 per cent.

However, he expects market returns to be lower than earnings growth because of the valuation multiples investors are currently paying.

Valuations Remain a Major Constraint

One of the central points in Bhasin's assessment is the gap between earnings growth and valuations.

Even if corporate earnings continue to expand at double-digit rates, a market trading at relatively high multiples may not deliver equivalent returns if those multiples contract.

This creates a more selective environment for investors. Rather than relying primarily on index-level expansion, investors may increasingly need to identify companies where earnings growth can justify existing valuations or where business fundamentals can improve faster than market expectations.

Bhasin described the current environment as a stock-picker's market, particularly outside the largest companies.

West Asia, Crude and US Policy Remain Key Risks

Bhasin identified several headwinds for Indian equities.

The first is the continuing conflict and uncertainty in West Asia, particularly because of its implications for crude-oil prices.

India remains sensitive to movements in global energy prices because higher crude prices can increase the country's import bill, put pressure on the rupee and affect inflation. Higher fuel and input costs can also influence corporate margins across sectors.

The second major factor is uncertainty surrounding US trade and economic policy, which Bhasin referred to as the "Trump tantrums".

For global investors, changes in US tariffs, trade policy, interest-rate expectations and geopolitical policy can influence capital allocation between emerging and developed markets.

The third concern is the continuing supply of equity in the Indian market.

Rising Equity Supply Could Absorb Liquidity

India's primary market has remained active, with IPOs and qualified institutional placements providing companies, promoters and existing investors with opportunities to raise capital or exit investments.

Bhasin believes this has fundamentally changed the country's capital-market structure.

According to his assessment, the IPO market has evolved over the past two decades. Earlier, IPO proceeds were more closely associated with funding capital expenditure. Over time, the market increasingly accommodated debt repayment, promoter sell-downs, private-equity exits and venture-capital exits.

More recently, companies have also used public-market capital to support acquisitions.

This means that not every IPO necessarily represents fresh investment into productive capacity. A significant portion of some offerings can involve offers for sale, where existing shareholders monetise their holdings.

IPO Market Reflects a More Mature Capital Ecosystem

Bhasin does not view the increasing role of promoter and private-equity exits as necessarily unusual for a maturing market.

India has developed a substantially larger ecosystem of venture capital, private equity and institutional investment than it had several years ago. As private investors reach the exit stage, public markets provide one route for monetising those investments.

The same evolution can be seen in the increasing number of companies using QIPs and public-market fundraising to finance acquisitions.

However, the growing supply of shares also has implications for market liquidity. When new IPOs, QIPs and secondary sell-downs arrive in large numbers, investor capital has to be distributed across a wider pool of opportunities.

Mid- and Small-Caps: Selective Opportunities, But Pockets of Excess

Bhasin does not describe the entire mid- and small-cap segment as being in a bubble.

Instead, he believes potential excesses are concentrated in particular themes and stocks.

He suggested that three factors need to be considered when assessing whether a bubble exists: valuation, earnings visibility and the strength of the underlying investment theme.

According to his assessment, certain thematic pockets could develop bubble-like characteristics where valuations are high but earnings visibility remains limited.

New-age and e-commerce companies were cited as examples where market narratives can sometimes run ahead of clarity on financial performance.

This does not mean the entire segment should be treated uniformly. Rather, Bhasin's comments point towards greater differentiation between companies with established earnings and those whose valuations depend heavily on future growth assumptions.

Foreign Investors Are Becoming More Selective

One of the strongest themes in Bhasin's assessment is the changing behaviour of foreign institutional investors.

He believes the period when global investors broadly increased their exposure to Indian equities on the strength of India's long-term growth story has largely passed.

Instead, foreign investors are increasingly asking a more specific question: which businesses in India offer attractive growth and valuation?

That represents a shift from a broad country-level allocation strategy towards company-specific selection.

India therefore remains important to global investors, but the investment approach is becoming more selective.

Domestic Liquidity Remains the Market's Key Support

As foreign flows become less dominant, domestic institutional and retail flows are playing a greater role in determining market direction.

Bhasin expects domestic flows to remain the dominant source of equity-market liquidity.

This creates a different market structure from the one in which foreign institutional flows were the primary driver of index movements.

Strong domestic mutual-fund flows, systematic investment plans and household participation can provide support even when foreign investors are selling.

At the same time, dependence on domestic liquidity means market momentum can change quickly if domestic flows weaken.

Why FIIs Have More Global Alternatives

Bhasin also pointed to the growing number of markets competing for global capital.

He identified the US, Japan, Europe, resource-rich emerging markets and China/Hong Kong as important alternatives for international investors.

The US remains a major destination because of its depth, technology exposure and scale. Japan has attracted renewed attention because of its semiconductor and industrial opportunities.

Resource-rich emerging markets can benefit when commodity cycles are favourable, while China and Hong Kong could attract investors looking for opportunities in markets that have experienced prolonged periods of weak sentiment.

This broader choice means India has to compete not only with other emerging markets but also with developed-market opportunities.

India Still Important, But the Investment Question Has Changed

Bhasin does not suggest that foreign investors are abandoning India.

Instead, he believes the nature of foreign investment has changed.

Earlier, global investors could make a broad India allocation and gain exposure to the country's growth story. Today, investors are increasingly asking which specific Indian businesses can generate scalable growth at reasonable valuations.

That distinction is important for the Indian market.

Companies with strong competitive advantages, scalable business models, sustainable earnings growth and reasonable valuations could continue attracting global capital even when broad India allocations remain subdued.

FDI, Private Equity and Startups Expand Capital Channels

Another structural change highlighted by Bhasin is the growing number of ways through which global capital can enter India.

Foreign investors are no longer dependent solely on listed-market FPI investments.

Capital can enter through foreign direct investment, private equity, venture capital and investments in India's expanding startup ecosystem.

This broadens the potential sources of foreign capital and could allow investors to participate in India's growth without necessarily buying expensive listed-market exposure.

For companies, it also creates more financing options before they reach the public markets.

Earnings Growth Versus Market Returns

The divergence between earnings growth and index returns is likely to remain an important theme.

Bhasin expects Nifty 100 earnings growth of roughly 12-13 per cent and Nifty 200 earnings growth of around 14-15 per cent.

But if valuation multiples remain elevated or decline, the market's return can be significantly lower than the underlying growth in corporate profits.

This is particularly relevant for investors who evaluate markets using earnings multiples.

A company can report strong profit growth and still generate muted shareholder returns if its valuation contracts at the same time.

What Investors Need to Watch

The next 6-12 months could therefore be shaped by several competing forces.

Crude-oil prices will remain important for inflation, corporate margins and the external balance. Global bond yields and US monetary policy will influence the relative attractiveness of emerging-market equities.

Foreign institutional flows will provide another important signal. Continued selling alongside strong domestic buying could keep the market range-bound, while a sustained return of global capital could alter liquidity conditions.

Investors should also track the pace of IPOs, QIPs and other equity fundraising because a heavy supply of new shares can influence liquidity and valuations.

Within mid- and small-caps, earnings delivery and valuation discipline may become increasingly important as the market differentiates between businesses with tangible profits and those relying primarily on long-term growth narratives.

Market Outlook

Bhasin's assessment points to a market environment where broad index returns could remain moderate despite continued corporate earnings growth. His expectation of 12-13 per cent Nifty 100 earnings growth contrasts with his much lower projected Nifty return, reflecting the impact of elevated valuations and macroeconomic uncertainty.

The broader message is that India's long-term economic and corporate-growth story remains relevant, but global investors may no longer be willing to pay any price for that growth.

For investors, the market could increasingly reward earnings visibility, balance-sheet strength, scalable business models and reasonable valuations rather than broad thematic enthusiasm.

The key variables for the coming year will include crude prices, West Asia developments, US trade and monetary policy, foreign-investor flows, domestic liquidity, equity supply and the ability of companies to deliver the earnings growth currently embedded in valuations.