Indian stocks poised for better CY26; Nifty’s earnings growth seen at 12% CAGR in FY25-27: Motilal Oswal

According to Motilal Oswal, Indian markets look set to perform better in CY26, especially after the sharp underperformance of around 26% in MSCI EM versus USD terms in CY25. The brokerage believes that the income environment is stabilizing and macro conditions are becoming supportive following a series of monetary and fiscal measures by the RBI and the Government of India.

Motilal Oswal said the 3QFY26 earnings season was broadly in line with expectations. In the MOFSL universe, 34% of companies exceeded estimates while 32% reported a miss at the PAT level, keeping the beat miss ratio balanced. Importantly, the overall earnings revision trajectory has improved. After a slow pace of earnings decline till 1QFY26, overall MOFSL PAT moved into upgrade territory in 2QFY26, a trend that was further supported in 3QFY26.

MOFSL Universe delivered PAT growth of 16% YoY in 3QFY26, marginally ahead of estimates of 14%. Motilal Oswal expects around 12% earnings growth for Nifty during FY25-27E. Nifty valuations at around 20.4x 12-month forward earnings are marginally lower than the long-term average of 20.9x, although valuations in the broader market remain stretched.

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Nifty reported 7% YoY PAT growth in the quarter, slightly ahead of 6% estimates, marking the seventh consecutive quarter of single-digit earnings growth since June 2020. SBI, Tata Steel, HDFC Bank, TCS and Bharti Airtel contributed 78% while IYY, PATCI and Motorcycle contributed 78% to the earnings growth. Emphasizes the earnings of the InterGlobe Aviation Index. Within the Nifty, 14 companies beat estimates, 10 missed and 26 were in line.

Across market capitalization segments, large caps delivered 16% YoY earnings growth in line with the universe. Midcaps rose 15% year-on-year, beating estimates of 22% pulled by private banks, metals, logistics and insurance. In contrast, healthcare, lending and non-lending NBFCs, automobiles, oil and gas and utilities have registered strong growth and accounted for around 77% of the year-on-year revenue growth. Small caps reported 29% YoY earnings growth against estimates of 34%, with 62% of companies meeting or exceeding estimates. In comparison, 79% of large caps and 67% of mid caps met or exceeded expectations.

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Despite domestic institutional inflows of around $90 billion in CY25, FII outflows of $19 billion weighed on the market’s relative performance. Motilal Oswal expects FII outflows to remain modest during the year, supported by progress on the India-US trade agreement and the proposed Indo-EU FTA, although disruptions in the IT services sector are worth monitoring in the near term.

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