Motilal Oswal forecasts a strong earnings rebound in India during FY27, driven by broad-based sector growth, despite a challenging global environment and mixed capital flows, signalling a more stock-specific market rally ahead.
Motilal Oswal says Indian equities are heading into a difficult stretch, but the more important story may be that corporate earnings are finally beginning to recover. In its latest India strategy note, the brokerage argued that the market is being pulled in opposite directions by a resilient domestic economy and an unfavourable external backdrop shaped by high energy costs, elevated bond yields, geopolitical risk and persistent foreign selling. Reuters and other reports summarising the note said the firm expects earnings momentum to improve sharply in the second quarter of FY27, with broad participation across sectors rather than a narrow rally led by a few large names.
The most striking call is on profits. Motilal Oswal expects earnings across its coverage universe of 399 companies to rise 22% year on year in Q2FY27, the fastest pace in 11 quarters. For the Nifty 50, it sees earnings growth of 27%, which would be the strongest in 17 quarters. The brokerage said the rebound should extend beyond large companies, with profit after tax expected to climb 23% for large caps, 11% for mid-caps and 29% for small-caps. Sales and operating profit are also projected to improve across the board, and the firm said almost every sector in its universe should post growth, a sharp change from the patchier earnings backdrop of recent quarters.
Financials are expected to lead the charge, supported by private banks, state-owned banks and non-bank lenders. Metals, oil and gas excluding oil marketing companies, and telecom are also forecast to deliver strong gains, while the brokerage is looking for especially rapid profit growth in telecom and solid expansion in metals and banking. The report, as covered by Business Standard and other outlets, suggests the earnings recovery is becoming more evenly distributed than in past cycles, which could matter for investors who have grown used to relying on a narrow set of market leaders.
At the same time, the flows picture remains mixed. Foreign institutional investors have kept selling in the secondary market, a trend Motilal Oswal attributes to global uncertainty, higher rates and the concentration of capital in artificial intelligence-related trades. Domestic institutions, however, have continued to offset that pressure. The brokerage estimates that domestic institutional investors put about $18 billion into Indian equities between July and September 2026, compared with roughly $0.7 billion from foreign investors, while monthly systematic investment plan contributions stayed above $3 billion. That resilience in domestic liquidity has helped keep the market functioning even as overseas money has moved away.
Valuations have also cooled meaningfully after two years of correction. According to the brokerage’s calculations, the Nifty 50, Nifty Midcap 150 and Nifty Smallcap 250 have all pulled back from their September 2024 peaks, and forward price-to-earnings multiples for large caps and mid-caps have fallen sharply from those highs. Motilal Oswal says the Nifty 50 now trades below its long-term average valuation, while the mid-cap index sits slightly below average and small caps remain above theirs. The gap between Indian equities and emerging-market peers has narrowed as well, easing one of the market’s biggest concerns from two years ago: that Indian shares were simply too expensive.
Even so, the brokerage is not calling for a broad, indiscriminate rally. It expects the next phase of the market to be more stock-specific, with investors rewarding companies and themes that can deliver earnings rather than simply paying higher multiples across the board. Motilal Oswal has shifted 400 basis points of its model portfolio from large caps into mid- and small-caps, while keeping an overweight stance on diversified financials, autos, new-age technology platforms, manufacturing, industrials and consumer discretionary names. A separate summary of the firm’s stance in the Financial Express said it is underweight private banks, consumer staples, energy and telecom, while remaining neutral on healthcare. The brokerage also sees manufacturing, capital goods, defence, electronics manufacturing services, data centres and internet businesses as areas with stronger investor interest.
The call on earnings is tied to a broader view that FY27 could be a better year for Indian markets after a difficult FY26. Motilal Oswal expects earnings growth to continue into FY28, with financials, metals, telecom and automobiles making the largest contribution to incremental profits in FY27. But the firm also warned that several risks could still upset the recovery, including global interest-rate moves, energy prices, inflation, the durability of the AI-led market trade, foreign flows and the pace of public-market fund-raising. Livemint reported that the brokerage sees Indian public-market fundraising hitting a record ₹6 trillion to ₹6.5 trillion in FY27, which could test domestic appetite if share sales and primary issuance accelerate too quickly.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
