Festive demand and policy support trigger earnings upgrades; Nifty outlook strengthens

Mumbai: India appears to have entered a long-awaited earnings upgrade cycle, supported by resilient corporate performance, strong festive demand, policy support, and an improving macroeconomic backdrop, according to a report released on Wednesday.

After five straight quarters of downward revisions, Nifty earnings forecasts have been upgraded by 0.7 per cent, 0.9 per cent and 1.3 per cent for FY26, FY27 and FY28, respectively. PL Capital, which authored the report, said the shift signals “an early but clear revival in broad-based corporate profitability”.

The Nifty has gained 4 per cent over the last three months, breaking out of a prolonged consolidation phase. The upgrade cycle has been fuelled by better-than-expected Q2 FY26 earnings, renewed optimism around progress in resolving tariff frictions with the United States, and a strong rebound in domestic consumption during the festive and wedding season.

The earnings revival has also been aided by the GST rate rationalisation introduced in September 2025, which lowered effective retail prices across multiple consumer categories and boosted spending in both urban and rural markets.

Using a 15-year average price-to-earnings ratio of 19.2 times and a September 2027 EPS estimate of 1,515, the report projects a 12-month Nifty target of 29,094. The bull-case valuation stands at 30,548, while the bear-case estimate is 26,184.

The model portfolio remains overweight on banks, healthcare, consumer goods, automobiles and defence, while maintaining underweight positions in IT services, commodities, and oil and gas.

Corporate earnings were strong during the quarter, with companies in the coverage universe reporting growth of 8.1 per cent in sales, 16.3 per cent in EBITDA and 16.4 per cent in profit after tax. EBITDA and PAT exceeded estimates by 5 per cent and 7.1 per cent, respectively, resulting in the first upward revision to Nifty EPS since August 2024.

Sectoral performance was particularly strong in hospitals, capital goods, cement, electronics manufacturing services, ports, NBFCs and telecom. Commodity-linked sectors, especially cement, metals and oil and gas, reported robust profit growth ranging from 33 to 58 per cent.

While government capital expenditure has driven economic momentum in recent years, growing more than threefold since the pandemic, the report cautions that capex could moderate in the second half of FY26. Spending in H1 FY26 has already reached 52 per cent of the annual target, compared with 41 per cent a year earlier. The combination of GST rate cuts, increased fertiliser subsidies and modest direct tax collections could restrict the government’s ability to exceed its current capex plan.

IANS