Indian equities are approaching an inflection point, says Motilal Oswal's Ajay Khandelwal

After nearly two years of price and time correction, during which Indian equities mainly underperformed key global peers, the market is approaching an inflection point, says Ajay Khandelwal, head of equities at Motilal Oswal Asset Management Company. In an exclusive interview with Fortune India, Khandelwal says the macro backdrop has become considerably more constructive. While higher energy prices remain a near-term risk, crude oil has been unable to sustain levels above $90 a barrel and could moderate further as geopolitical tensions ease. Global oil trade has also largely normalised compared with the disruptions seen during March-April 2026, reducing a key source of uncertainty. 

With domestic liquidity holding up and the corporate earnings outlook improving, the risk-reward for Indian market has become increasingly favourable, he says. According to Khandelwal, the market will be well positioned to deliver stronger returns over the next six to 12 months. 

Four factors to watch 

According to Khandelwal, four key factors will shape investor sentiment. Earnings strength will remain the most important fundamental driver. Corporate earnings for the MOFSL and Nifty universe are expected to grow at around 15% CAGR over FY26-28E, despite temporary margin pressure in the first quarter of FY27. A broader-based recovery across sectors will be crucial for sustaining market participation. 

FII flows are showing early signs of improvement after months of selling. Foreign investors have invested around $2.5 billion in Indian equities since June 16, 2026. A sustained recovery in FII flows will be an important indicator for the market. 

The third factor is a potential rotation in the global AI trade. The recent correction in AI-driven markets such as the US, Taiwan and Japan could indicate that the AI-led trade is cooling. This could potentially redirect global capital towards emerging markets such as India. 

The fourth is primary-market supply. A strong pipeline of large IPOs and capital-raising activity could test market liquidity. The ability of the market to absorb this supply without disrupting secondary-market flows will be an important measure of underlying liquidity strength. 

FII flows show signs of a turnaround 

Foreign institutional investors remained persistent sellers between March and June 2026, largely due to concerns over the West Asia conflict, elevated crude prices and broader global risk aversion. However, sentiment towards India has improved following the temporary US-Iran ceasefire announced in mid-June. FIIs have invested more than $2.5 billion in Indian equities since then. 

Khandelwal believes the improvement could continue, although geopolitical risks and energy-price volatility will need to be monitored. The cooling of the AI-led trade, an improving corporate earnings outlook and a meaningful correction in valuations, particularly among large-cap stocks, have improved India's relative attractiveness. “Given these factors, we believe it will become increasingly difficult for global investors to remain structurally underweight India, provided the macro environment remains stable,” he says. 

Financials, autos, and manufacturing remain preferred 

At the sector level, Motilal Oswal remains structurally overweight on diversified financials, automobiles, new-age technology platforms, manufacturing and industrials, and consumer discretionary. However, Khandelwal believes the current market is primarily a bottom-up, stock-pickers' market, with attractive opportunities emerging across sectors despite the firm's broader sector preferences. 

The earnings season is reinforcing that view. The first-quarter FY27 earnings season has started on a positive note, with aggregate earnings exceeding expectations, led by banks, NBFCs, automobiles and capital goods companies. “Strong earnings reinforce the attractive risk-reward for Indian markets as earnings are healthy across the market-cap spectrum,” he says. 

DMA unlikely to materially change retail investing 

The introduction of direct market access (DMA) for retail investors is unlikely to have a significant impact on either investors or brokerage firms, Khandelwal says. 

While DMA offers faster order execution, greater transparency and more control over order placement, these benefits are more relevant for active traders and sophisticated market participants. Its adoption among retail investors is likely to remain limited. 

Only a small subset of retail investors is expected to meet the exchanges' risk-management and eligibility criteria. For the average long-term investor, the incremental benefit is also likely to be minimal, as investment returns are driven more by asset allocation and stock selection than by marginal improvements in execution speed. As a result, Khandelwal expects DMA to have only a limited impact on the broader retail investor base and brokerage industry. 

How the active momentum fund works

The Motilal Oswal active momentum fund follows a simple investment philosophy: identify stocks demonstrating strong and sustained price trends while avoiding those where momentum is weakening. 

The premise is that stocks performing well often continue to do so for some time because improving business fundamentals and positive investor sentiment tend to play out gradually. 

Unlike a passive momentum index, the fund actively reviews and rebalances its portfolio every month. This allows it to respond more quickly to changing market trends and replace stocks where momentum has faded. 

The fund also applies its proprietary momentum framework to a carefully selected universe of high-quality companies. This quality filter is intended to improve the portfolio's resilience across different market environments. Whether the fund is worth buying, however, depends on an investor's objectives and risk profile. 

Momentum is one of the most extensively researched investment factors globally and has the potential to generate superior long-term returns. But like any investment strategy, it goes through periods of both outperformance and underperformance. Investors should therefore view momentum as a long-term allocation, rather than judge the strategy on short-term performance. 

Five to seven years for momentum 

Momentum investing is best suited to investors who are comfortable with higher short-term volatility in pursuit of potentially higher long-term returns. The strategy tends to perform particularly well during sustained bull markets but can face periods of underperformance when markets reverse sharply or remain range-bound. 

Investors should therefore assess not only their return expectations but also their ability to remain invested through market fluctuations. A minimum investment horizon of five to seven years is advisable, Khandelwal says, as this gives the strategy sufficient time to benefit from multiple market cycles. 

Momentum need not be viewed as a standalone investment strategy. It can also complement a diversified portfolio by providing exposure to a different style of investing. 

Patience is key to surviving underperformance 

The biggest challenge in momentum investing is often behavioural rather than structural. Investors who exit after a temporary setback often risk missing the subsequent recovery. A disciplined, long-term approach is therefore essential. Equally important is maintaining realistic expectations and recognising that short-term fluctuations are a natural part of a strategy designed to capture long-term trends. 

Diversifying across investment styles instead of relying entirely on momentum can make a portfolio more balanced and improve an investor's ability to remain invested through varying market conditions. Ultimately, the key to successful momentum investing is consistency and patience rather than trying to time every market movement. 

For Indian equities, Khandelwal sees a similar lesson. With earnings improving, FII selling moderating, valuations becoming more attractive, and global capital flows potentially shifting, the market could be moving from a prolonged period of correction towards its next phase of growth.