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Motilal Oswal Financial Services Ltd. (MOFSL) has released its latest India Strategy report, "Beyond the AI Rally: The Great Rotation," highlighting that India is entering a more favourable phase after nearly two years of market consolidation. The report believes improving macroeconomic conditions, easing geopolitical concerns and strengthening corporate earnings are creating a constructive environment for Indian equities.market

According to the report, while global markets have largely been driven by a narrow AI-led rally, India's relative underperformance has made valuations more attractive. As market leadership broadens beyond AI-focused sectors, Indian equities could benefit from a gradual rotation of global capital.

Motilal Oswal Financial Services expects corporate earnings to grow at around 15% CAGR during FY26-FY28, despite near-term pressure in the first quarter of FY27. The report notes that easing energy prices, improving macro stability and healthier earnings visibility are strengthening the investment outlook for India.

For the June quarter (Q1FY27), the report expects earnings across the MOFSL Universe to decline by 3% year-on-year, mainly due to weakness in oil marketing companies. However, excluding OMCs, profit after tax (PAT) is projected to grow 14% year-on-year, reflecting healthy performance across several sectors.

Financials and Metals are expected to lead earnings during the quarter. Lending NBFCs, private and public sector banks, metals, technology, capital goods, retail, consumer durables and building materials are likely to remain key contributors to overall earnings growth. In contrast, Oil & Gas, automobiles, healthcare and cement are expected to weigh on overall performance.

The report also identifies two key themes investors should monitor over the coming months:

* The direction of foreign institutional investor (FII) flows.

* The market's ability to absorb a strong pipeline of upcoming IPOs and capital raising without affecting liquidity.

Reflecting its long-term investment strategy, Motilal Oswal Financial Services has increased its allocation towards mid- and small-cap companies while maintaining preference for businesses with strong earnings visibility and structural growth. The model portfolio remains overweight on diversified financials, manufacturing and industrials, automobiles, new-age technology platforms and consumer discretionary, while remaining underweight on private banks, commodities, utilities, energy and FMCG.

The report maintains that India's long-term growth fundamentals remain intact and believes the market is moving towards a phase where company-specific earnings and execution will play a much bigger role than broad market trends. Businesses that continue to strengthen their competitive position and deliver sustainable earnings growth are expected to create superior long-term value.

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