Whalesbook
Near-Term Headwinds Cited
Equity markets are poised for range-bound trading in the immediate future, even as the medium-term earnings outlook for the Nifty remains positive, according to PL Capital's latest India Strategy Report. The brokerage has adjusted its 12-month Nifty target downward to 28,814 from 29,094. This revision stems from persistent global uncertainties and potential execution challenges on the ground.
Market Momentum Weighed Down
The Nifty has surrendered much of its recent gains, trading largely flat amid escalating geopolitical risks and ongoing tariff uncertainties with the United States. These external pressures, coupled with heightened global business volatility, have dampened market momentum. Consequently, PL Capital anticipates investor caution to persist in the short term, with large-cap stocks expected to continue their outperformance.
Resilient Domestic Fundamentals
Despite the muted near-term outlook, domestic macro fundamentals remain robust. Improving consumer sentiment is underpinned by supportive policies including cumulative repo rate cuts totaling 125 basis points, income tax reductions, GST rate rationalisation, low inflation, and favourable monsoon forecasts. These factors are projected to maintain economic momentum into the next fiscal year.
Earnings Projections Revised
PL Capital has made minor adjustments to its Nifty earnings estimates, trimming FY26 and FY27 projections while slightly increasing FY28 forecasts. The brokerage still anticipates Nifty earnings per share to grow at a compound annual growth rate (CAGR) of 14.8 per cent between FY26 and FY28. The target of 28,814 was derived by valuing the index at a 3 per cent discount to its 15-year average price-to-earnings multiple.
Sectoral Positioning
Domestically oriented sectors are expected to lead performance in the near to medium term. PL Capital identifies banks, non-banking financial companies (NBFCs), automobiles, select consumer staples, jewellery, defence, durables, and metals as prime beneficiaries of anticipated demand growth. Rural demand continues to show steady, faster growth than urban demand, which has seen gradual improvement.
Budget 2027 Outlook
The upcoming Union Budget for FY27 is expected to focus on infrastructure spending and structural reforms, rather than major tax-related announcements. With significant income tax and GST adjustments already implemented, major policy shifts are less likely. PL Capital also cautioned that fiscal deficit management could pose challenges due to softer tax collections, although higher dividends and controlled expenditure may help contain slippage.
Amnish Aggarwal, Co-Head Institutional Equities at PL Capital, stated, “As the 2027 budget approaches, the focus is likely to shift towards structural economic reforms, with limited room for major tax concessions following last year’s significant increase in tax slabs and GST rate cuts.”