Nifty eyes record as largecaps lead charge on strong corporate earnings

Indian equity benchmarks Nifty 50 and Sensex are now less than 5 per cent away from their lifetime highs, supported by a stronger-than-expected earnings performance for the second quarter of financial year 2026-27 (Q2FY27), attractive valuations, and easing energy prices. Analysts believe sustained earnings growth could provide further support to the rally, and largecaps will lead the next leg of the recovery. 

The Nifty 50 gained 0.84 per cent to close at 25,255.05 on Wednesday, just 4.1 per cent below its record high of 26,328.6, recorded on January 2. The Sensex, which ended the session 0.95 per cent higher at 81,879.4, is 4.6 per cent below its lifetime high of 85,836.1, touched on September 26, 2024. 

A key driver of the improved sentiment has been the broad-based recovery in corporate earnings. According to Motilal Oswal Financial Services, 230 companies in its coverage universe, accounting for nearly 50 per cent of India’s market capitalisation (mcap), had reported results as of October 31. Brokers expect FY27 earnings per share (EPS) for the Nifty 50 at ₹1,247 and for FY28 at ₹1,428, or a growth of 14.5%. The forward price-to-earnings (PE) ratio of 18.6x, compared to the present PE multiple of 20.5x, makes the Indian market very attractive. The 10-year average Nifty PE works out to 20.9x. 

These companies recorded 26 per cent year-on-year (Y-o-Y) growth in sales, 24 per cent in Ebitda (earnings before interest, taxes, depreciation, and amortisation), and 33 per cent in net profit, marking the “highest growth in 12 quarters”.

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Largecaps reported 30 per cent profit growth, and among the 35 Nifty companies that had declared results, earnings grew 22 per cent, led by Reliance Industries, JSW Steel, ICICI Bank, Coal India, and Axis Bank. 

Shrikant Chouhan, head of equity research at Kotak Neo, said largecaps are likely to lead the current leg of the market rally. While select mid-caps may also participate in the rebound, their gains will likely be modest compared to the sharp rally seen over the past seven to eight months, he added. 

“Ahead of key triggers such as the Union Budget and Q3FY27 earnings, we believe private banks and capital markets, both attractively valued sectors, could perform well. Auto stocks have also gained recently, but a further correction in crude oil prices towards $80 per barrel could revive buying interest and support another leg of upside,” Chouhan said. 

“While Pharma may consolidate after its recent run-up, Defence stocks could attract buying interest ahead of the Budget,” he added.