New Delhi [India], October 12 (ANI): Indian equity markets are likely to become increasingly driven by corporate earnings, with companies demonstrating strong cash flows, durable earnings visibility and disciplined execution better positioned to navigate continued volatility, according to a research report by ICICI Prudential AMC.

The report said persistent external risks, including tensions in West Asia, crude oil prices, global bond yields and foreign portfolio investor (FPI) outflows, could continue to influence market movements. It added that domestic liquidity and resilient economic activity could provide support, while disciplined stock selection would become increasingly important in determining returns.

The assessment comes after Indian equities faced significant pressure in September, with the Nifty 50 declining 6.1 per cent amid escalating geopolitical tensions, elevated crude oil prices, rising global bond yields and foreign investor selling.

The Nifty Midcap 150 and Nifty Smallcap 250 indices fell approximately 7.1 per cent and 3.1 per cent, respectively, during the month. Foreign portfolio investors withdrew around USD 4.1 billion from Indian equities in the secondary market, while domestic institutional investors purchased approximately USD 8 billion, cushioning the impact of overseas selling.

On the macroeconomic front, the report flagged inflationary pressures and the risk of a structurally higher interest-rate environment. India's consumer price inflation rose to 4.8 per cent year-on-year in August from 4.5 per cent in July, while the country recorded a 12.6 per cent rainfall deficit during the monsoon season, raising concerns over agricultural output, rural incomes and food inflation.

Against this backdrop, the asset manager said businesses generating stronger near-term cash flows could be better positioned than those dependent on earnings far into the future, as higher discount rates could weigh on valuations. Companies carrying excessive debt could also face greater balance-sheet risks as funding costs rise.

The report indicated that portfolios could benefit from a tilt towards value-oriented businesses with strong cash generation, prudent capital structures and durable balance sheets.

Meanwhile, India's investment outlook showed some positive signs. New project announcements rose around 29 per cent year-on-year to Rs 14.6 trillion in the first quarter of FY27, largely driven by private-sector investments, even as government project announcements declined.

The report noted the renewed escalation in West Asia, monsoon-linked inflation outcomes and the Reserve Bank of India's policy decisions would remain key factors to watch. It added that companies with sustainable earnings visibility and strong execution capabilities would be critical to market performance as investors increasingly focus on fundamentals. (ANI)