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India's equity market benchmark Nifty is likely to touch 27,019 in one year up from earlier expectation of 26,449, due to improved macroeconomic conditions and valuations, a report said on Wednesday. 

The report from PL Capital said India's structural growth story remains firmly intact, but the domestic economy continues to face near-term risks from geopolitical uncertainty, weather-related disruptions and inflationary pressures.

Despite these challenges, improving domestic demand, easing crude oil prices and attractive market valuations continue to provide support to the broader equity market, it added.

The firm gave a positive outlook on the banking, NBFCs, capital goods, defence, telecommunication, jewellery, hospitals and consumer durables segments based on the favourable trends in domestic demand, infrastructure investment, manufacturing prospects, and credit growth.

However, the brokerage is cautious on auto, consumer, it services, cement, chemicals and oil & gas companies.

Inflation, despite remaining moderate, is anticipated to increase on account of an unfavourable base effect as well as the growing likelihood of Super El Niño phenomenon in the current monsoon season, the report noted.

The firm estimated the value of the index at 10 per cent discount to its average 15-year price-to-earnings ratio for FY28 earnings. Despite the rally in the market, which has raised valuations, the NIFTY is trading at a discount of 11.7 per cent to its historical average, the report said.

However, the report noted that there is an indication that earnings expectation is still under pressure. The research firm believed that there could be additional earnings reduction should any adverse geopolitical developments and weather situations negatively affect consumption and earnings of firms.

Corporate earnings in the first quarter of FY27 have generally remained solid amid global uncertainty. Earnings after taxes excluding the oil and gas sector is expected to be up 14 per cent YoY due to good demand in Banks/NBFC, consumer durables, hospitals, metals, renewable and engineering services.

Rural demand has remained stable although its sustainability would largely be determined by monsoon progress, the report noted.

The Nifty Index has witnessed gains of nearly 7.3 per cent in the past two months and 8 per cent from 52-week lows. Credit growth has picked up to 17 per cent, indicating solid demand in sectors such as retail, services, agriculture, and industry, while policies of the Indian government have insulated the economy from global disruption in supply chain and commodity prices.