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PL Capital, one of the most trusted financial services organisations in India, in its latest India Strategy Report stated that India’s growth narrative is entering a decisive phase as policy clarity, landmark trade agreements and a sustained infrastructure push converge to lay the foundation for the next leg of expansion. The prolonged phase of market consolidation appears to be giving way to renewed optimism, with structural drivers firmly in place despite recent earnings recalibrations.

Over the past nine months, the Nifty has traded within a narrow 5–6% band, reflecting a period of adjustment amid global geopolitical uncertainties, tariff disruptions and a 9–9.5% earnings per share (EPS) moderation for FY26 and FY27. However, early signs of revival are emerging. Corporate performance has remained resilient, with sales, EBITDA and profit after tax for the coverage universe growing 9.9%, 16.4% and 16.7% year-on-year respectively, even as EPS estimates were trimmed. While FY26 EPS growth is expected at a measured 3.8%, the medium-term earnings trajectory remains strong, with an estimated 16.3% CAGR over FY26–28, indicating that the current phase is more of a reset than a reversal.

On valuations, the Nifty currently trades at 19.1x one-year forward earnings, broadly aligned with its 15-year average. The base case assumes the index trading at 18.3x—reflecting a 5% discount to long-period averages—on December 2027 EPS of 1,525, translating into a 12-month target of 27,958. In a bullish scenario, a 20x multiple implies upside toward 30,497, while a conservative bear case suggests 26,486.

A defining catalyst for the next growth cycle has been India’s accelerated progress on trade diplomacy. The recently concluded India–EU Free Trade Agreement marks a historic breakthrough as The European Union, accounts for nearly 19% of India’s exports. It represents a combined market of approximately USD 24 trillion, which will now offer India preferential access across 97% of tariff lines, covering 99.5% of trade value. Around 70.4% of tariff lines representing ~90% of India’s exports to the EU, will see immediate duty elimination.

Labour-intensive sectors such as textiles and apparel, marine products, leather and footwear, gems and jewellery, chemicals, machinery and electrical equipment stand to benefit significantly. Textiles and apparel, which earlier faced duties of 8–12%, will now enjoy zero-tariff access, enhancing competitiveness against global peers. Marine exports, leather goods and gems—critical employment generators—are expected to see a meaningful demand boost. Beyond merchandise trade, the services component of the agreement opens new frontiers. IT and ITeS firms gain improved market access and visa clarity, while financial services, professional services, telecom, education and digital trade benefit from regulatory alignment and cooperation frameworks. Importantly, collaboration in advanced semiconductors, chip design and critical industrial electronics strengthens India’s manufacturing ambitions.

Mr. Amnish Aggarwal, Director Research, Institutional Equities, PL Capital said, India is transitioning from a cyclical recovery phase to a structurally stronger growth trajectory. What differentiates this cycle is the depth of policy execution, rising private sector participation and the scale of opportunity emerging across manufacturing, digital infrastructure and domestic consumption. Markets may have paused, but the underlying economic engine continues to gain strength. As capital formation accelerates and productivity enhancements play out, we believe Indian equities are entering the early stages of a multi-year compounding cycle.”

Parallelly, India’s interim trade framework with the United States has removed a significant overhang for exporters. Following the imposition of reciprocal and punitive tariffs in 2025, the new understanding withdraws punitive duties and reduces reciprocal tariffs from 25% to 18% upon conclusion of the broader agreement. The recalibration lowers uncertainty across sectors such as gems and jewellery, textiles, aircraft parts, auto components and select industrial goods. India, in turn, will rationalize tariffs on certain US industrial and agricultural products while expanding purchases of energy, aircraft and technology hardware. The agreement also addresses non-tariff barriers and enhances cooperation in areas including investment screening, export controls and technology transfers, particularly in data centers and advanced computing hardware.

These twin trade breakthroughs complement the government’s domestic growth agenda. Budget 2026–27 continues to prioritize capital expenditure, with central capex rising 12% and overall capex—including state grants—up 22%, even as the fiscal deficit is guided at 4.3%. Strategic thrust areas include defense manufacturing, data centers, renewable energy, high-speed rail corridors, semiconductor fabrication, electronics components under the PLI framework, aerospace and specialty chemicals. Customs duty exemptions on aircraft components and extended incentives for data centers signal India’s intent to position itself as a global hub for manufacturing and digital infrastructure.

Sectorally, banks and diversified financials are positioned to benefit from credit growth normalization toward 13–14% and stable asset quality. Capital goods and engineering companies are likely to ride the infrastructure and defense wave. Consumer demand is gradually reviving amid GST rationalization, lower inflation and easing rates, while healthcare continues to offer structural growth supported by domestic and specialty segments. The strategy remains constructive on banks, diversified financials, healthcare, consumer, automobiles and capital goods/defense, with a relatively cautious stance on IT services and commodities.

Over the next five to ten years, asset creation and technology-led industries are expected to drive India’s next phase of expansion. Improved global market access, lower tariff barriers and stronger supply chain integration should enhance both export competitiveness and domestic manufacturing capabilities. While near-term risks such as global rate movements, climatic disruptions and technology-led shifts in employment warrant monitoring, the structural trajectory remains favorable. As trade corridors reopen, policy support strengthens and earnings momentum gradually rebuilds, India stands at the cusp of a renewed growth cycle. The consolidation in equities may, in hindsight, prove to be the foundation for the next expansionary phase—with the decks now firmly cleared for growth.

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