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Bajaj Asset Management Limited’s latest equity market analysis points to a shift in market trends. Valuations have eased since September 2024, while earnings and credit growth are gaining momentum. However, global uncertainties and high crude oil prices could keep markets volatile in the near term.

Valuations ease, earnings expectations hold up

Indian equity valuations have cooled from September 2024 levels. The Nifty 50’s 12-month forward price-to-earnings (P/E) multiple fell 31%, from 24.8x to 17.2x by September 2026. The Nifty Midcap 150 declined 36%, from 35.6x to 22.8x, while the Nifty Small cap 250 eased 7%, from 25.0x to 23.2x.

India’s market capitalisation-to-GDP ratio is estimated at 122% for FY27, below its September 2024 high of 150%. Yet earnings delivery remains crucial for market performance.

“Valuation multiples have eased from recent highs, but the market capitalisation-to-GDP ratio remains elevated. Sustained earnings growth will be important for market performance ahead,” said Sorbh Gupta, Head - Equity, Bajaj AMC.

The gap between prices and earnings expectations is also notable: the Nifty 50 was down 8.09% year-on-year in September 2026, even as its forward 12-month earnings per share (EPS) estimate rose 9.62%.

Corporate earnings gain momentum

Q1FY27 earnings growth strengthened across market-cap segments. Large-cap earnings growth rose to 23% from 10% in Q4FY26, while mid-cap earnings grew 23%. Nifty 50 profits increased 19% year-on-year, with commodity and telecom companies contributing around 60% of incremental profits.

Bajaj AMC’s estimates point to BSE 500 earnings growth of 17% in FY27 and 16% in FY28. For FY27, growth is estimated at 16% for large caps, 19% for mid-caps and 28% for small caps. These are forecasts, not assured outcomes.

Credit growth picks up pace

Credit growth is broadening, led by corporate and SME lending. Infrastructure financing is supporting demand from large industries. Banks have reported improving loan growth and stable asset quality, while non-banking finance companies have benefited from lower funding costs and healthy lending activity.

Life insurers also recorded growth in the value of new business, particularly in traditional products.

“Improving credit growth and valuations support the banking outlook. Banks where loans reprice faster than deposits may be better positioned,” said Gupta.

Sector outlook: Selectivity remains key

Bajaj AMC identifies sector-specific drivers and risks rather than a uniform market opportunity:

Banking and financial services: Credit growth and asset quality remain supportive; margins need monitoring.

Healthcare: Hospitals, diagnostics, wellness and contract research and manufacturing services benefit from long-term demand trends.

Power and power equipment: Government capex, grid expansion, and sustainable-energy investment support demand.

Automobiles: Volumes and affordability have improved, while raw material and currency costs may pressure margins.

Consumer staples: Volume growth has improved, but pricing power and cost control remain important.

Information technology: Subdued demand visibility, global policy uncertainty, and potential AI-led disruption warrant caution.

Pharmaceuticals: Domestic formulations and contract manufacturing remain supportive; US generics face tariff-related risks.

Metals, oil and gas, and utilities: Commodity prices, crude-related margin pressure and electricity demand are key earnings drivers.

Outlook: Earnings delivery in focus

Geopolitical tensions, crude oil prices, US interest rates, rupee movements and foreign portfolio flows may keep near-term volatility elevated. Bajaj AMC remains focused on earnings visibility and valuations when assessing sector opportunities.

“Easing valuations and improving earnings offer a more supportive market backdrop, but global risks remain. Our focus is on selective opportunities, disciplined valuations and sustainable earnings growth,” concluded Gupta.

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