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According to PL Capital’s India Strategy Report, Indian equity markets have turned largely range-bound after giving up most of their recent gains, amid rising global geopolitical risks and persistent tariff-related uncertainties with the US. However, domestic demand indicators and macro fundamentals continue to show resilience, supported by policy-led tailwinds.

It notes that NIFTY has shed most gains made in past couple of months and has been largely flattish. Global geopolitics is redrawing global power and business equations leading to significant increase in business uncertainty, In addition  India’s sustained tariff row with the USA is disturbing the market momentum.  

However, domestic demand outlook and macro indicators still continues to show sustained traction in 3Q and beyond as benefits of cut in interest rates, GST rationalization, income tax cuts, low inflation have started to show in improved consumer sentiments and demand. 

Mr. Amnish Aggarwal, Co-Head Institutional Equities, PL Capital said “We expect economic momentum to be sustained as the benefits of strong tailwinds—arising from income tax rate cuts, a cumulative 125 bps cut in the repo rate, normal monsoons, decade-low inflation, and GST rate rationalisation—carry forward into next year. As the 2027 Budget approaches, the focus is likely to shift towards structural economic reforms, with limited room for major tax concessions following last year’s significant increase in tax slabs and GST rate cuts.”

Accordingly, PL Capital has revised NIFTY earnings estimates marginally, with FY26/27/28 EPS adjusted by -2.6%, -2.4% and +1.0%, respectively. Despite near-term caution, NIFTY EPS is projected to grow at a 14.8% CAGR over FY26–28. The brokerage values the NIFTY at a 3% discount to its 15-year average P/E, arriving at a 12-month target of 28,814, down from 29,094 earlier.

However, PL Capital remains cautious in the near term and expects large caps to continue to outperform, having delivered returns of 16–17% over the past 12 months. It expects domestically oriented sectors such as banks, NBFCs, autos, select staples, jewellery, defence, select durables and metals to outperform over the near to medium term.

PL Capital notes that 3Q26 has shown a mixed demand scenario. Auto demand has been robust as GST rationalization has boosted demand across segments of 2W, PV, CV and tractors. Jewellery demand has been robust with 30-40% industry sales growth despite 65% higher gold prices YoY. Consumer Durables have seen tepid response after GST rationalization so far while apparel and footwear have been mixed. Travel demand has been decent, sans some impact of Indigo Airlines flight issues in Dec25. Consumer Staples has seen gradual pickup in demand post inventory rationalization got over by mid-November. Rural demand remains steady and is growing ahead of urban demand, urban sentiment has shown steady improvement in the past few months with hopes of further pick up in coming months.

Accordingly, PL Capital estimate a growth of 8.2% in sales, 12.8% in EBIDTA and 12.2% in PBT for its coverage universe. Ex oil & Gas, it estimates 12.6% growth in EBIDTA and 11% in PBT.

Budget 2026-27 – Focus likely on Infra and structural reforms 

Union Budget FY26-27 arrives amidst increasing global geopolitical uncertainty and chaos, tariff tiff with the USA and India retaining its tag of fastest growing large economy with 4th Rank in GDP. FY26 has seen multiple positives which include 1) multi-year low inflation 2) cut in interest rates by 125bps 3) cut in income tax rates 4) GST rates rationalization and 5) normal monsoons. These initiatives have resulted in strong GDP growth (FY26 estimates at 7-7.3%) despite punitive US tariffs and geopolitical uncertainty.

PL Capital expect structural reforms to continue in budget, however any big bang announcements post tax cuts and GST rationalization of last year look unlikely.

* Reviving the “Animal Spirit”, GDP growth estimated at 6.5-6.8% in FY26: India's GDP growth is projected to slow to 6.4% in FY25, its weakest in four years, driven by subdued private investment, manufacturing deceleration, and global economic headwinds. However, the economy is expected to see a recovery in FY26 at 6.5%-6.8%, supported by government spending, monetary policy easing and improved consumer demand.

* Direct tax rationalization is unlikely: With last year’s big tax adjustment in personal income tax rates, we don’t expect any meaningful changes in tax slabs in the current budget. PL Capital note that corporate and income tax growth at YTD Nov has been 5.5/7.5% as against FY26 estimates of 9.4/21.6% respectively. It sees high probability of a miss in direct tax collections.

• Capital Expenditure: expect moderate increase in FY27: Nov Govt capex has seen an increase of 28% on a low base. If the Govt sticks to its target of Rs11.1trln capex, we are expected to see a decline of 15% in balance months. Unlike last year, PL Capital expect capex spending to be mostly on target, but any increase from earlier number looks unlikely as the govt has not taken any approvals for supplementary spends in this head. It expect high single digit to low double digit increases in capex allocations for FY27. Defense allocation is likely to see a double digit increase in allocation.
  • Capex spending has been varying between various segments from year to year. Based on PPP approvals we expect Power, Roads and Infra and water and sanitation to see increased capex from center and state governments.
  • Ordering momentum has been slow in EPC/Infra/railways etc. and the focus has been on power, renewables, transmission and data centers off late.
  • DAC approvals of ~Rs3.8trn in CY25 (+52% YoY) and rising geopolitical uncertainty will continue to see higher allocation in the budget.

* Fiscal deficit might slip a bit due to incentives and poor tax collections: while tax collection has been lower, revenue expenses ex of interest has declined by 3%. PL Capital note that higher interest outlay and dividends from RBI and other inflows will be key to control fiscal deficit. Although GOI will try to meet the target of 4.4% fiscal deficit, small slippage can’t be ruled out.

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