Aditya Birla Sun Life AMC expects the disconnect between Indian stock market valuations and corporate profits to shrink within 18-24 months. With projected corporate earnings growth of 11% for FY27, the firm anticipates a more sustainable market environment. This outlook relies on a broadening profit pool as companies beyond the top 50 indices increasingly drive earnings.
Aditya Birla Sun Life Asset Management Company expects the disconnect between India's equity market valuation and actual corporate profits to shrink within the next 18 to 24 months. Harish Krishnan, the firm’s Chief Investment Officer for Equity, noted that the pace of earnings growth has recently accelerated, which is helping the market return to a more balanced footing.
According to the firm’s projections, corporate earnings for the top 1,000 listed Indian companies are expected to grow by approximately 11% for the 2027 fiscal year. This anticipated profit growth is a key reason for the expected narrowing of the market capitalization gap. While stock market valuations have remained relatively steady recently, the underlying business performance has shown stronger improvement, suggesting that valuations may soon reflect this fundamental growth.
A notable shift is occurring in where these profits are generated. Market data indicates that profit concentration has moved away from the Nifty 50 index. The share of profits contributed by these top 50 companies has declined significantly over the past several years, while firms outside this group are now contributing a larger portion of the total profit pool. This diversification suggests that the Indian growth story is becoming more widespread across different company sizes rather than being restricted to the largest players.
To navigate these market dynamics, the firm recently launched two specialized investment funds—the Apex Equity Long-Short Fund and the Apex Equity Ex-Top 100 Long-Short Fund. These offerings are designed to address the current market environment and capitalize on the changing profit landscape.
However, investors should remain aware of potential risks. The Indian equity market is currently trading at high valuation levels relative to historical averages, which may limit the potential for significant short-term upside. Additionally, macroeconomic factors such as potential crude oil price volatility, geopolitical tensions, and fluctuations in foreign institutional investor flows remain important variables to consider. Currency volatility also poses a risk to trade competitiveness, though recent interventions by the central bank have helped maintain stability.
For investors, the most critical factors to track in the coming months will be the actual earnings performance of companies in upcoming quarterly results. Sustained earnings growth is necessary to support the firm's projected 14–17% index gains for the current fiscal year. Changes in global macroeconomic conditions and any shifts in foreign investor sentiment will also be important indicators to watch.