Market swings ahead, fundamentals provide anchor: Analysts map FY27 path

Improving valuations and a projected earnings recovery of 13-15 per cent, analysts believe, are expected to sustain the long-term investment case

Indian equity markets are poised for a volatile yet potentially rewarding journey in FY27, analysts say, as global uncertainties intersect with domestic fundamentals. 

 

Near-term fluctuations, they said, could be driven by elevated crude oil prices, a strong US dollar, and geopolitical tensions, testing investor sentiment. At the same time, improving valuations and a projected earnings recovery of 13–15 per cent, they believe, are expected to sustain the long-term investment case.

 

Garima Kapoor, deputy head of research and economist at Elara Capital, noted that Indian equities would hinge on the balance between external stability and domestic resilience. “Globally, crude oil, US yields, DXY, and geopolitical tensions in West Asia will be critical as they influence FPI appetite and currency stability. Domestically, macro stability and policies limiting energy shock impacts will act as anchors. Earnings breadth and margin resilience will determine whether macro strength translates into equity performance. Stabilisation of external shocks is essential,” said Kapoor.

 

 

Some analysts expect that improving demand, government spending, RBI policy support, and corporate earnings will support markets, even as uncertainty around global rates, currency movements, and FII flows may keep investors cautious.

 

Rupen Rajguru, head of equity investments and strategy at Julius Baer India, said both global and domestic factors will shape market trends. “Geopolitical developments and DXY remain key amid a risk-off environment. Rising crude prices have implications for the CAD, inflation, and the rupee, alongside supply chain disruptions. DXY and rupee movements will influence EM and FPI flows,” said Rajguru.  Domestically, demand, growth, and earnings remain critical. While recovery is uneven despite policy support, earnings growth, Rajguru believes, is expected to revert to a 13–15 per cent trend from FY27.

 

Ajay Garg, director and CEO at SMC Global Securities, added that policy continuity, domestic resilience, and global developments would guide markets. “GDP growth, capex, infrastructure push, and policy support should underpin markets. Liquidity, credit growth, and monetary policy will also be crucial,” he noted, cautioning that a surge in crude could widen the fiscal deficit, fuel inflation, and affect rates.

Will markets reclaim or surpass previous peaks in FY27?

Analysts remain divided on whether benchmark indices will surpass previous highs in FY27, though the long-term outlook is broadly positive. Rajguru stressed that markets are ultimately earnings-driven. “While key ingredients such as earnings recovery, reasonable valuations, stable macro conditions, and improved flows, particularly from FPIs, are gradually falling into place, their translation into market performance remains uncertain. Markets are likely to perform reasonably well over the next three to four years.”

 

Garg was relatively more optimistic. He sees a reasonable probability of markets reclaiming and potentially surpassing previous peaks, contingent on how quickly geopolitical tensions, particularly between the US and Iran, ease to stabilise oil prices. “Strong domestic fundamentals, consistent earnings growth, and India’s positioning as a preferred investment destination among emerging markets support a bullish outlook. However, global uncertainties such as geopolitical tensions, interest rate volatility, and commodity price fluctuations could delay upward momentum,” said Garg.

Sectors likely to shine in FY27

Analysts believe sectoral performance in FY27 will largely depend on earnings visibility, policy support, and global demand conditions. Analysts expect BFSI, capital goods, infrastructure, banks, defence, and power to perform well. The IT sector, they said, also offers value, trading at 16–17x forward P/E, a 20–30 per cent discount to historical averages.

 

Rajguru favoured BFSI, consumption (including auto), healthcare, and industrials. “The BFSI segment has several factors in its favour — reasonable valuations, robust asset quality, expected improvement in credit growth, and low penetration in insurance and capital markets. In consumption, stimulus-led demand should improve growth dynamics and sentiment. Healthcare should see steady domestic growth, aided by better affordability, penetration, and health coverage, along with strong prospects internationally. Industrials and infrastructure are likely to benefit from a pick-up in the capex cycle, higher government spends on domestic infrastructure, and improving manufacturing,” he said.

 

Kapoor expects value sectors to outperform alongside healthy growth visibility. “For FY27, we remain constructive on discretionary consumption like auto, lending financials, defence, power, and select infra bets such as ports and airports. With expected nominal GDP growth above 11 per cent, Nifty earnings should grow 15 per cent in FY27. Structurally, power and data centre-linked capex remain key, with India’s current capacity of 1.5GW expected to scale towards 10GW in the coming years, supported by hyperscaler investments and data localisation,” she said.

 

Garg highlighted sectors aligned with India’s structural growth themes. “Capital goods, infrastructure, and banks may benefit from continued government spending and private capex revival. Banking and financial services should remain strong due to healthy balance sheets, credit demand, and improving asset quality. Manufacturing sectors, including defence and electronics, could gain from the ‘Make in India’ push and global supply chain diversification,” said Garg.

Retail investors’ playbook for FY27

Amid volatility, analysts advise retail investors to adopt a disciplined approach. Wealth creation, they said, hinges on prudence, patience, and a well-defined investment strategy, with asset allocation across equities, mutual funds, gold, and silver aligned to risk appetite and financial goals.

 

Rajguru stressed sound stock selection over momentum investing. “Good price and good news rarely come together,” he said, highlighting the importance of a margin of safety, long-term perspective, and ignoring market noise.

 

Garg echoed similar views, recommending focus on fundamentally strong companies with consistent earnings visibility. Systematic investment plans can manage volatility and average costs over time, while diversification across sectors and market capitalisations remains essential. 

(Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.)