Earnings recovery expected to gather pace by FY27: Neelesh Surana

The Indian market has delivered limited returns, with median performance for the NSE 500 turning negative, says Surana

Markets are neither inexpensive enough to warrant a sharp re-rating nor stretched enough to pose immediate downside risks, says Neelesh Surana, chief investment officer, Mirae Asset Investment Managers India. In an interview with Samie Modak in Mumbai, Surana says domestic equity market performance is likely to mirror the underlying earnings trajectory, with profit growth expected to remain in the low-teens over the next couple of years. Edited excerpts:

 

How do you assess the market’s performance over the past 14-15 months? What factors have driven this consolidation?

 

The Indian market has delivered limited returns, with median performance for the NSE 500 turning negative. This period is best described as a consolidation or time correction. Nevertheless, calendar 2025 will still mark the 10th consecutive year of positive returns for the Nifty 50, a rarity in global markets. Three major forces have shaped this phase. First, the economy and corporate earnings experienced a slowdown, though this is now beginning to improve. Second, India’s valuation premium relative to other emerging markets has compressed. Third, foreign portfolio investors (FPIs) have been persistent sellers. The latter two trends were significantly influenced by the sharp rally in AI-driven stocks in global markets.

 

Do valuations look attractive now?

 

Valuations appear reasonable. They are not inexpensive enough to trigger a strong re-rating, nor do they look stretched. As a result, market performance will likely track the underlying earnings trajectory, which is expected to grow in the low-teens range over the next couple of years.

 

How does the earnings growth picture look?

 

Earnings growth for FY26 is expected to be around 8 per cent, following multiple downgrades over the past 15 months. However, FY27 is likely to see a meaningful recovery, with earnings projected to rebound to about 11-12 per cent for large-cap and 17-18 per cent for mid-caps, supported by a favourable FY26 base and improving demand. On the fiscal side, measures such as GST 2.0, income-tax rationalisation, state-level support and the likely implementation of the 8th pay commission should bolster the recovery. On the monetary side, policy actions have been substantial, including a 125-basis-point reduction in interest rates, liquidity infusions, and several macro-prudential steps designed to support growth.

 

Are there any other tailwinds or headwinds for the market?

 

A revival in consumption remains an important potential tailwind for earnings. Capital flows have stabilised, and the intensity of foreign outflows has reduced. However, global trade issues and geopolitical risks continue to remain headwinds.

 

Is the rupee breaching 90 a cause for concern?

 

Not materially if we see from a long term lens as India’s long-term macro fundamentals remain stable. Fiscal metrics are manageable, the current account deficit is under control, and foreign exchange reserves are healthy. The recent depreciation

is largely driven by near-term export challenges, capital-flow dynamics, and efforts to maintain export competitiveness.

 

Which sectors are you positive or cautious about?

 

We remain positive on many mass-consumption discretionary categories such as retail, building materials, where earnings have been subdued for several years and may now mean-revert. Opportunities also exist across financial services, healthcare, and select export-oriented industries. On the other hand, we are cautious on the capital-goods space, where valuation remains expensive even on elevated earning expectations.

 

Your fund has seen a revival recently. What changed?

 

The earlier drawdowns were largely quotational in nature, given our diversified exposure across banking and mass consumption which didn’t do well in 2024 vis-à-vis industrials. The recent recovery, without any meaningful change to the portfolios, indicates that the softer phase was temporary rather than a sign of permanent capital impairment. Our investment framework has remained consistent, focusing on high-quality businesses and disciplined valuations.

 

What larger economic story does the Sensex narrate over the last four decades?

 

Over the past 45 years, the Sensex has created exceptional wealth, rising approximately 1,300 times on a total-return basis when dividends are factored in. This performance reflects India’s structural growth strengths, entrepreneurial depth and the economy’s ability to navigate multiple domestic and global cycles.

 

The Sensex has delivered around 15 per cent CAGR since inception. What structural strengths enabled this?

 

India’s long-term wealth creation has been supported by consistent double-digit nominal GDP growth. This has been driven by favourable demographics, rising infrastructure and productivity, greater formalisation and financialisation of the economy, and a series of policy reforms that improved efficiency and capital allocation. Reforms such as GST, PLI, RERA, the IBC, and the creation of Digital Public Infrastructure have strengthened the economic framework significantly over the past decade.

 

What gives you confidence that India can sustain its economic and market momentum?

 

India’s macroeconomic fundamentals are materially stronger today, reflected in stable inflation and thus low cost of capital, a manageable current account deficit, rising foreign exchange reserves and eventually there will be declining dependence on oil. Several growth drivers remain firmly in place. The demographic dividend is at a favourable phase, the country is progressing toward middle-income status, and new engines of growth -- such as services exports driven by global capability centres and an emerging manufacturing ecosystem-- are gaining traction. Together, these factors support a durable medium- to long-term outlook for India’s economy and equity markets.

Next: Neelkanth Mishra, chief economist, Axis Bank and head of Global Research, Axis Capital