Indian Markets Poised For Growth: Nilesh Shah Sees 11-13% Earnings Jump in FY26
Is the Worst Over for Indian Markets?
Nilesh Shah, Managing Director of Kotak Mahindra AMC, believes the Indian equity market is showing signs of recovery but cautions against declaring a definitive end to volatility. While near-term uncertainty has eased, the full impact of global trade deals remains to be seen. Shah emphasizes the importance of a watchful approach to assess the market’s final trajectory.
Shah notes that valuations remain elevated, particularly for mid and small-cap companies, which are trading significantly above their long-term averages. Large-caps, while also showing a premium, are less drastically overvalued. From a risk-reward perspective, Shah continues to favor large-cap investments.
Gradual Improvement Expected for Corporate India
Despite the recent volatility, Shah anticipates a gradual improvement in corporate India’s earnings over the next few quarters. He points to several positive factors, including:
- Signs of improvement in rural demand
- Cutoffs in interest rates
- Improved liquidity in the market
- Stable and moderate oil prices
He acknowledges that challenges remain, particularly with regard to urban demand and private sector capital expenditure, alongside ongoing global uncertainty regarding trade and tariffs.
FY26 Earnings Forecast
Building on the expectation of gradual recovery, Shah predicts an 11-13 percent growth in Nifty earnings for FY26. This projection comes after a muted FY25, indicating a positive outlook for the year ahead.
Beyond Nifty: Healthcare and Defense Sectors
Shah highlights the long-term potential of the Indian healthcare sector, driven by increasing affordability, improved access, and advancements in medical technology. He particularly emphasizes the growth in contract service providers (CDMO/CRO) and hospitals, which are poised for strong expansion. The defense sector is also gaining momentum, fueled by geopolitical factors and a push towards domestic manufacturing. Shah acknowledges the recent re-rating of defense stocks but believes the underlying structural theme and growth opportunity remain intact.
RBI Policy, FII Flows, and the China Trade War
Shah anticipates further policy rate cuts by the Reserve Bank of India (RBI) given the current low inflation. The RBI is expected to focus on maintaining durable liquidity in the system. Regarding foreign institutional investor (FII) inflows, Shah acknowledges the difficulty in predicting their direction, suggesting that geopolitical developments, US policies, and global growth and valuations will play a significant role. Domestic investor flows, however, remain stable, supported by strong monthly systematic investment plan (SIP) contributions. Finally, Shah believes the US-China trade war will likely persist, but recent negotiations offer a glimmer of hope for a resolution.
