Market Indicators Suggest Potential Bottom Ahead, Small and Mid-Cap Stocks Show Early Recovery Signs

Market Bottoming Out: Anil Rego Sees Resilient Earnings and Strong Investor Confidence

Anil Rego, Founder and Fund Manager at Right Horizons PMS, has observed clear signs of the market moving toward a bottoming-out phase, particularly in the broader market. After a meaningful correction, small and midcaps are now showing stronger recovery compared to large caps, indicating improving investor confidence.

According to Rego, corporate earnings remain resilient, with historically, earnings continuing to stay ahead of prices and corrections driven more by sentiment than fundamentals often marking the formation of a market bottom rather than the beginning of a deeper or prolonged downturn.

Sectoral Performance

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The BFSI sector is well-positioned to lead the market recovery once geopolitical uncertainties ease, with early Q4FY26 results already supporting this view. Banking fundamentals remain strong, with system credit growth improving to 14.6 percent YoY while asset quality remains stable and credit costs continue to decline.

As oil prices stabilize and risk sentiment improves, lower funding pressures and better liquidity conditions can further support valuations, making BFSI the natural leader of the broader market recovery.

Market Recovery

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There are clear signs that the market is moving toward a bottoming-out phase, particularly in the broader market. Small and midcaps have already undergone a meaningful correction and are now showing stronger recovery compared to large caps, which indicates improving investor confidence.

Investors are gradually moving back toward growth-oriented segments where earnings visibility remains strong and valuations have become more attractive after the correction. Domestic liquidity continues to provide strong support through consistent SIP inflows and steady DII participation, helping absorb volatility caused by foreign outflows.

Entry Point for Long-term Investors

The current market is offering a good entry point for long-term investors, especially after the meaningful correction seen across broader markets over the past several months. Valuations in small and midcaps have become far more reasonable, while earnings growth remains strong, creating a better risk-reward setup than what was available during peak valuations.

Investors should focus on quality businesses with earnings visibility and reasonable valuations, as long-term wealth creation comes from strong businesses rather than short-term market timing. Rather than aggressive lump-sum deployment, phased allocation is more prudent.

Real Estate Stocks

The real estate sector still benefits from strong domestic institutional participation, steady office demand, and investor preference for stable yield-generating assets such as commercial real estate and REIT-linked opportunities. Domestic capital has increasingly become the primary support for the sector, reducing reliance on foreign inflows and helping maintain project execution even during global uncertainty.

However, some caution is necessary, as foreign investments have slowed due to geopolitical tensions and global risk aversion, which can impact sentiment and funding visibility. Weaker hiring trends and uncertainty in the IT sector may also affect residential demand, especially in premium housing segments driven by salaried professionals.

Investors should focus on quality developers with strong balance sheets, execution strength, and diversified demand exposure rather than taking a broad sector call.

Oil Prices

Oil prices are likely to remain elevated during the first half of FY27 due to continued geopolitical tensions in the Middle East, particularly around the Strait of Hormuz. Any disruption or prolonged uncertainty in this region tends to keep a geopolitical premium embedded in crude prices.

However, in the second half of FY27, prices could gradually stabilize in the $75–85 per barrel range if geopolitical tensions ease, supply normalizes, and global demand growth moderates. A sustained move above $100 would be a concern for India, as it would pressure inflation, widen the current account deficit, and weigh on the rupee.

Earnings Growth

FY27 earnings growth exceeding 10 percent still appears achievable despite geopolitical tensions, provided the disruption remains temporary and crude prices do not stay elevated above $100 per barrel for a prolonged period. The consensus expects earnings to rise meaningfully over FY26–28, with stronger support from domestic-facing sectors.