Earnings to accelerate market gains; valuations may apply brakes: Kotak Sec

Earnings: Key accelerator for markets 

• 
  Higher nominal gross domestic product (GDP) growth in FY2027 (around 10 per cent, against around 8 per cent in FY2026)
• 
  A recovery in consumption demand from H2FY26, aided by lower goods and services tax (GST); income tax, and interest rates
• 
  Stronger export revenues on the conclusion of the long-pending India–US trade deal. 

However, the report flagged risks from weaker-than-expected global growth and margin pressure in automobiles and consumer staples due to raw material and competitive factors.

Rich valuations remain a “brake”

Despite the time correction in markets, analysts said valuations across the broader market and several sectors remain elevated, with multiples in both consumption and investment themes staying high even after large earnings downgrades over FY2025–H1FY26. 

Moderate outlook for consumption and investment

Kotak expects steady consumption and investment in the coming quarters, with limited room for a sharp acceleration given reduced scope for further fiscal and monetary stimulus. It sees a modest recovery in low-income household consumption on improved affordability and a moderate pick-up in government capex, while household capex may slow. 

It noted that robust government capex in railways and roads, strong residential real estate demand, and resilient high-income consumption have been key drivers of GDP growth over FY2021–25.

Q3FY26 earnings beat expectations

In Q3FY26, Nifty50 net income rose 9.8 per cent, well ahead of the report’s expectation of 2.5 per cent, while net income for the coverage universe grew 15.1 per cent versus an expected 8 per cent increase. Nifty50 Earnings before interest, tax, depreciation and amortisation (Ebitda) grew 5 per cent against an estimated 4.4 per cent, and Ebitda for Kotak’s coverage universe rose 11.7 per cent, compared to an expected 10.6 per cent, strengthening the near-term earnings backdrop.  Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.