Earnings to accelerate market gains; valuations may apply brakes: Kotak Sec

Kotak anticipates FY2027E and FY2028E net profits of the Nifty50 Index to grow 16 per cent and 15 per cent after a muted 8 per cent growth in FY2026.

Kotak Institutional Securities believes Indian equities could see a gradual upward trend over the next few months after a prolonged period of stagnation, supported by an improving earnings outlook, though high valuations—especially in consumption-linked pockets—may limit the pace of gains. Kotak’s note said that the December quarter (Q3FY26) results were largely decent, with strong growth in revenues and earnings across consumption sectors, which bodes well for FY2027E.

Earnings: Key accelerator for markets 

The brokerage anticipates FY2027E and FY2028E net profits of the Nifty50 Index to grow 16 per cent and 15 per cent after a muted 8 per cent growth in FY2026. The constructive stance is anchored on:

• Higher nominal gross domestic product (GDP) growth in FY2027 (around 10 per cent, against around 8 per cent in FY2026)
• A recovery in consumption demand from H2FY26, aided by lower goods and services tax (GST); income tax, and interest rates
• Stronger export revenues on the conclusion of the long-pending India–US trade deal. 

However, the report flagged risks from weaker-than-expected global growth and margin pressure in automobiles and consumer staples due to raw material and competitive factors.

Rich valuations remain a “brake”

Despite the time correction in markets, analysts said valuations across the broader market and several sectors remain elevated, with multiples in both consumption and investment themes staying high even after large earnings downgrades over FY2025–H1FY26. 

 

It attributed this to continued price-agnostic domestic retail buying and the Street’s belief in an imminent earnings rebound. It also noted that sector multiples (excluding financials) are above or in line with pre-Covid levels despite lower earnings growth and, in many cases, weaker fundamentals due to rising competition and disruption threats—risks the market continues to misprice.  CHECK Stock Market LIVE Updates

Moderate outlook for consumption and investment

Kotak expects steady consumption and investment in the coming quarters, with limited room for a sharp acceleration given reduced scope for further fiscal and monetary stimulus. It sees a modest recovery in low-income household consumption on improved affordability and a moderate pick-up in government capex, while household capex may slow. 

 

It noted that robust government capex in railways and roads, strong residential real estate demand, and resilient high-income consumption have been key drivers of GDP growth over FY2021–25.

Q3FY26 earnings beat expectations

In Q3FY26, Nifty50 net income rose 9.8 per cent, well ahead of the report’s expectation of 2.5 per cent, while net income for the coverage universe grew 15.1 per cent versus an expected 8 per cent increase. Nifty50 Earnings before interest, tax, depreciation and amortisation (Ebitda) grew 5 per cent against an estimated 4.4 per cent, and Ebitda for Kotak’s coverage universe rose 11.7 per cent, compared to an expected 10.6 per cent, strengthening the near-term earnings backdrop.  Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.