What Will Drive The Next Market Rally? Emkay Bets on Your Spending Habits

Indian stock markets may finally be nearing an inflection point after a string of muted earnings, according to brokerage firm Emkay Global.

In its latest report, the firm said, “The broader market delivered weak earnings for Q1FY26, though trends did not worsen significantly. We see this as the bottom for the cycle, and expect a recovery from 2HFY26, led by consumer discretionary.”

The BSE500’s profit-after-tax growth (PATg) came in at 9.9% for the quarter, the fifth successive quarter of single-digit growth. For the Emkay universe too, growth was muted but improved slightly, moving to 9% YoY from 4% in the previous quarter.

Topline growth remained sluggish at around 7% for both the Nifty and the BSE500, though rising EBITDA margins provided some relief.

Consumption Weakness Hurts, but Recovery Ahead
For consumers, the weak quarter reflects subdued demand in everyday purchases, from packaged goods to big-ticket discretionary items like vehicles and electronics. Emkay noted that both discretionary and staples were major laggards in Q1FY26, underscoring ongoing stress in household spending.

However, the brokerage expects this to turn around. “We see consumption being the key delta factor going forward,” Emkay highlighted, pointing to an expected revival in demand from H2FY26. Discretionary categories, particularly autos, are seen as the best way for investors to play the recovery.

B2B Sectors Provide the Cushion
While household demand faltered, B2B sectors came to the rescue. Energy and Materials led the way with double-digit growth, aided by new capacities and better pricing power. Real estate and telecom also delivered strong results, contrasting the weakness in consumer-facing categories.

Financials, however, continued to struggle with pressure on net interest margins (NIMs), dragging overall growth to 7.5% YoY despite stable asset quality. Technology too remained underweight in Emkay’s portfolio outlook.

Earnings Cuts Stabilise, Forecasts Hold
Despite the weak headline numbers, earnings revisions were not drastic. Consensus Nifty EPS forecasts saw only a marginal 2% cut during the quarter, with implied FY26 EPS growth now at 9.6%.

Emkay observed, “The implied growth for the Nifty over Jul ’25–Mar ’26 is an achievable 11% YoY – we see some upside as the consumption cycle turns.”

Nifty at 28,000?
Looking ahead, Emkay is optimistic about Indian equities. The brokerage has set a Nifty target of 28,000 for September 2026, underpinned by a recovery in discretionary consumption, autos, and industrials.

Importantly for consumers, the report flags the Goods and Services Tax (GST) reform as a “long-term growth accelerator” that could boost spending power and widen access to goods. “We see GST reform as a strong rerating trigger, as the long-term earnings positives will take some time to seep through,” Emkay said.

In summary, while Q1FY26 earnings disappointed, Emkay sees this as a bottoming-out phase. The expected revival in consumer demand, from buying cars to household staples, could drive the next leg of market growth, offering optimism for both investors and everyday consumers.

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