Diwali Pick: Which sectors could spark biggest stock market rally? Expert shares his top pick with Anil Singhvi

Diwali Stocks To Watch: As Diwali arrives, investors are looking beyond the festive lights and celebrations to gauge how the stock market may perform in the next 12 months.

Harsha Upadhyay, a seasoned market expert, shared his detailed outlook with Zee Business Managing Editor, Anil Singhvi, on the Indian equity markets from this Diwali to the next, highlighting the triggers that could drive stocks higher and the sectors that may create wealth for investors.

Markets Poised for a Better Year Ahead

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Looking back at the last 12 months, earnings growth was decent, though slightly below the long-term trend. Valuations have already adjusted, and the markets have largely consolidated within a range.

According to Upadhyay, this sets the stage for the next 12 months to be better than the past year.

Structural reforms, including improvements in income tax and GST, are already showing positive effects on consumption. These benefits, he believes, will continue to support growth in the coming year.

Key Triggers Supporting the Market

Earnings growth is expected to pick up from the third quarter onward. With GST collections strong, an additional 1–2% improvement in earnings growth is likely.

Monetary policy remains supportive, and there is even a possibility of another interest rate cut, which could further aid growth.

Commodity prices, including crude oil, remain at comfortable levels, reducing cost pressures on businesses.

On the global front, trade tensions, especially between India and the US, remain an area of concern. However, most domestic and international macroeconomic factors look supportive at this stage.

The FII Puzzle – Why Flows Are Weak

One key challenge has been persistent selling by foreign institutional investors (FIIs). While overall emerging market flows turned positive between July and September, India did not benefit much due to trade relationship concerns with the US.

Tariff announcements, especially the unexpected 50% duties, have created uncertainty and shaken investor sentiment.

Upadhyay, however, believes that if earnings visibility improves or negotiations on tariffs bring positive outcomes, FIIs may return more strongly.

Where Should Investors Focus?

When asked where investors should allocate money, Upadhyay emphasised domestic economy-linked sectors over global themes.

Consumption-driven sectors, backed by structural reforms, remain highly attractive for long-term wealth creation.

Banking and NBFCs, which enable credit growth, are also poised to perform well as lending activity is expected to improve in the next 12 months.

Digital platforms and technology-driven businesses with strong competitive advantages will also continue to grow at robust rates. These areas, according to him, should form the core of investor portfolios.

Metals Sector To Watch

Metals have rallied sharply and even reached record highs, despite concerns around tariffs and weak demand expectations.

Upadhyay cautioned that while it is difficult to take a very large call in this sector, supply-side constraints in China and possible closures of inefficient capacities are driving expectations of more stable pricing.

Selective positions can be taken in this space, but the core portfolio, he stresses, should remain in banking, NBFCs, consumption, and digital businesses.