Key Highlights
- The Indian market is currently better positioned than it was a year ago, supported by several fundamental tailwinds: (i) Earnings acceleration: We anticipate a return to double-digit earnings growth for FY27 and FY28, providing a sharp recovery from the low single-digit growth seen in FY26.
- (ii) Compelling valuations: The Nifty50 is currently trading at a one-year forward P/E of 19-20 times - a significant moderation from the 22-23 times levels seen during the September 2024 peak.
- (iii) Valuation normalisation: India’s valuation premium over the MSCI EM index has compressed from 80% (September 2024) to a more sustainable 47% (December 2025), falling below the 10-year average of 57%.
- (iv) Discounted externalities: Most headwinds, including the USD-INR volatility, geopolitical shifts, and FPI outflows, are now largely factored into current price levels.
- (v) Consumption catalysts: A domestic demand revival is expected, driven by a cumulative 125 bps reduction in the repo rate, recent income tax reforms, and GST rationalisation, further supported by a healthy monsoon, which augurs well for the rural economy.
