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Nifty 50 Faces Crucial Test: Earnings Season Looms
9 Jan
Summary
- Nifty 50's forward PE multiple unchanged for a year due to muted profit growth.
- Analysts anticipate a sharp rebound in Nifty earnings, led by banks.
- Market divergence signals an inflection point, with stock selection key for 2026.
India's Nifty 50 index faces a pivotal moment as the crucial Q3 earnings season commences next week. After a year of valuation stagnation and two consecutive years of lackluster profit growth, the benchmark's forward PE multiple remains at 20.4 times. Analysts are expressing optimism for a strong rebound in corporate earnings, with projections suggesting India could become one of the fastest-growing markets globally.
Banks are anticipated to spearhead this recovery, supported by contributions from the telecom and metals sectors. This potential turnaround is bolstered by government and RBI reflationary efforts, including rate cuts and liquidity infusion. For the first time in nearly five years, equity valuations appear favorable relative to short-term interest rates, suggesting potential equity upside, though risks like slower credit growth and margin pressures persist.
Despite the bullish sentiment, some analysts predict soft Q3 earnings, continuing a trend of subdued growth. This divergence in views highlights the market's current inflection point. While India has underperformed global peers, its relative valuations are now more palatable, potentially reviving investor interest. However, with limited margin for safety and markets priced for stability, earnings delivery, not multiple expansion, is expected to drive performance in 2026, emphasizing the importance of astute stock selection.
