Strong Corporate Earnings and Domestic Investment Support Positive Outlook for Indian Stocks
NEW DELHI–India’s equity markets are positioned for potential gains over the next two to three years as improving corporate earnings, strong domestic investment flows and more attractive valuations reinforce confidence in the country’s economic outlook, according to a report released Tuesday by Carnelian Asset Management & Advisors.
The report said India’s underlying economic fundamentals remain resilient despite recent market volatility, supported by strengthening domestic consumption, expanding private-sector investment and accelerating credit growth.
Credit growth averaged approximately 16% during Samvat 2082, compared with 10% in the preceding year, reflecting increased lending activity and demand for financing across the economy.
The report also highlighted improving private capital expenditure, consumer spending and investment activity as factors supporting continued economic expansion.
Corporate earnings have shown signs of a broad-based recovery, providing additional support for equity market valuations.
Among the 392 companies in the Nifty 500 index that had reported quarterly financial results, combined revenue increased 24% year over year, while profit after tax rose 21%.
The earnings performance suggests improving profitability across multiple sectors and could help sustain investor interest in Indian stocks over the medium term.
Domestic institutional investors have also played a significant role in supporting the market amid substantial selling by foreign portfolio investors.
According to the report, foreign investors sold approximately 4 trillion rupees worth of Indian equities during the previous Samvat year, while domestic institutional investors purchased about 7.1 trillion rupees.
The strong domestic buying helped offset foreign fund withdrawals and demonstrated the growing influence of Indian institutional capital in the country’s equity markets.
Carnelian also noted that stock valuations have moderated from elevated levels seen a year earlier, potentially improving the market’s risk-reward outlook.
The benchmark Nifty 50 index, which previously traded at approximately 24 times projected earnings over the following 12 months, is now valued at around 19 times forward earnings.
Similarly, the broader Nifty 500 index has seen its forward price-to-earnings multiple decline from approximately 26 to 21.
The decline in valuation multiples indicates that Indian stocks have become relatively less expensive compared with their anticipated earnings, even as corporate profitability shows signs of improvement.
Separately, Citi Research recently projected that the Nifty 50 could reach 28,000 points by the end of 2027, representing a potential gain of approximately 12% from its referenced closing level of 24,986.
The brokerage cited expectations for stronger corporate earnings, lower crude oil prices and a possible moderation in global capital spending on artificial intelligence infrastructure as factors that could benefit Indian equities.
Indian stocks had underperformed several international markets in recent months as global investors directed substantial capital toward companies associated with the artificial intelligence boom.
Elevated crude oil prices also weighed on investor sentiment, given India’s dependence on imported energy.
As one of the world’s largest oil importers, India remains particularly sensitive to fluctuations in international energy prices, which can affect inflation, corporate profitability and the country’s trade balance.
However, improving domestic economic conditions, sustained institutional investment and more moderate equity valuations have strengthened expectations for a recovery.
The Carnelian report indicated that India’s combination of earnings growth, expanding credit availability and domestic demand could provide a foundation for positive equity market performance over the coming two to three years. (Source: IANS)
