Client Associates has upgraded mid-cap stocks to overweight, noting that large-cap valuations remain attractive. The firm projects a 14.1% EPS growth for the Nifty in FY27, driven by domestic consumption and infrastructure. Investors should note that while earnings sentiment is turning positive, geopolitical risks and oil prices remain key variables.
Rohit Sarin, Co-Founder of Client Associates, has updated the firm's outlook on the Indian market, signaling a shift toward specific domestic growth themes. The investment strategy now favors mid-cap stocks with an overweight rating, while small-caps have been adjusted to a neutral stance. This move comes as the firm observes that large-cap companies are currently trading at a discount compared to their historical average valuations, potentially offering a different risk-reward profile for long-term investors.
Earnings and Macro Outlook
The broader earnings outlook is showing signs of improvement. Financial data projects Nifty earnings per share growth to reach 14.1% for FY27. This represents a recovery from the more muted expectations seen in the previous two fiscal years. The investment team at Client Associates has shifted its earnings outlook from neutral to neutral-turning-positive. However, this growth trajectory remains sensitive to external factors. Fluctuations in crude oil prices and ongoing geopolitical tensions are identified as primary risks that could impact corporate profit margins in the coming quarters.
Sectoral Trends and RBI Policy
Beyond the broader indices, specific sectors such as banking, financial services, and infrastructure are highlighted for their potential to benefit from resilient domestic investment. The real estate sector is also mentioned as a area to watch, with expectations that a potential easing of financing costs could support residential demand. Conversely, the IT sector has faced pressure throughout the current calendar year due to concerns over global economic growth and limited immediate benefits from artificial intelligence initiatives. A clearer recovery in international technology spending and evidence of successful AI adoption by Indian IT firms are seen as necessary triggers for a change in sentiment toward this sector.
In terms of monetary policy, the expectation is that the Reserve Bank of India will likely maintain a steady stance during its August meeting. The central bank is focused on managing inflation, which has seen recent upward revisions to 5.1%, alongside a downward adjustment in GDP growth projections to 6.6% for FY27. Consequently, the market is bracing for a data-dependent approach from policymakers rather than sudden interest rate shifts. Investors should continue to monitor upcoming domestic inflation data and global energy price movements, as these will directly influence the cost of capital and corporate profitability in the near term.