Indian Stock Markets Healthier as Earnings Cycle Bottoms Out, Says Motilal Oswal

Brokerage Reports

3rd November 2025, 4:12 AM

Indian Stock Markets Healthier as Earnings Cycle Bottoms Out, Says Motilal Oswal

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Stocks Mentioned :

Coal India Limited

Axis Bank Limited

Short Description :

A report by Motilal Oswal Financial Services indicates that Indian stock markets are in a healthier state compared to last year, with the earnings cycle appearing to bottom out. Second-quarter FY26 earnings were largely in line with expectations, and growth is projected to accelerate. Valuations are considered reasonable, supported by government reforms and a stable Nifty PE ratio. The report highlights selective opportunities in mid- and small-cap stocks, despite their higher valuations.

Detailed Coverage :

According to a report by Motilal Oswal Financial Services, the Indian stock markets are currently in a more robust condition than they were last year. This positive outlook is driven by the expectation that the corporate earnings cycle is reaching its lowest point, with growth anticipated to pick up significantly into double digits.

Second-quarter FY26 results for Nifty companies largely met expectations. On aggregate, Nifty stocks reported sales, EBITDA, Profit Before Tax (PBT), and Profit After Tax (PAT) growth of 9%, 8%, 5%, and 5% year-on-year, respectively, surpassing estimates. Valuations are deemed reasonable, with the Nifty trading at 21.4 times earnings, close to its long-period average (LPA) of 20.8 times. The report suggests that any acceleration in earnings growth could further support valuation expansion.

Government initiatives and domestic reforms are expected to positively influence corporate earnings trajectory. An external catalyst could be the resolution of the ongoing tariff stalemate.

Regarding mid- and small-cap stocks, valuations remain expensive, but Motilal Oswal continues to selectively focus on high-conviction small and mid-cap (SMID) names.

However, some companies like Coal India, Axis Bank, Hindustan Unilever, and Kotak Mahindra Bank reportedly dragged down overall Nifty earnings. Out of 27 Nifty companies analyzed, fifteen delivered in-line results, five recorded a profit beat, and seven missed expectations.

Impact: This news is likely to have a positive impact on the Indian stock market, fostering investor confidence and potentially leading to valuation expansion as earnings growth accelerates. The ongoing reforms and stabilization in earnings provide a solid foundation for market performance. Rating: 8/10

Difficult terms explained: EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortisation. It's a measure of a company's operating profitability. PBT: Profit Before Tax. This is the profit a company makes before deducting income taxes. PAT: Profit After Tax. This is the net profit remaining after all expenses, including taxes, have been deducted. LPA: Long-Period Average. In this context, it refers to the historical average valuation multiples over an extended period. SMID: Small and Mid-Cap. Refers to companies with smaller market capitalizations compared to large-cap companies.