Global brokers turn bullish on India on strong earnings, easing valuation concerns

Foreign brokerages have turned constructive on India after the market lagged global peers over the last year. Brokerages like Goldman Sachs now see a case for Indian equities to outperform over the coming year, upgrading India back to Overweight with a Nifty target of 29,000 for end-2026. JP Morgan has also raised its Nifty base-case target to 30,000 over the same horizon, while HSBC maintains its overweight stance, noting that “the worst is over.” Over the past year, while the broader emerging-market complex surged nearly 30 percent in USD terms, Indian equities advanced a muted 3 percent, dragged down by slowing profit growth, persistent earnings downgrades and an unusually sharp wave of foreign outflows. Goldman Sachs noted that the gap between India and EM peers reached nearly 25 percentage points, “the largest performance wedge in twenty years,” a stark reversal from the previous decade in which India frequently topped global return tables. The brokerage attributes the weakness to “peak starting valuations,” a slowdown in corporate profits, and tariff-related uncertainty, which prompted unusually large foreign investor outflows. What is driving the change Earnings are now the primary reason for the more optimistic tone. HSBC reports that the most recent quarter was “their best quarter since Sept 2023,” with 69 percent of companies beating or meeting estimates. Total sales grew 6 percent year-on-year, and net profits were up 13 percent, supporting the brokerages’ continued overweight stance on Indian equities. HSBC also notes that after a year of downgrades, Indian earnings for FY26e are now seeing modest upgrades, with limited risk of downgrades for FY27e EPS. Analysts at JP Morgan also share this perspective, projecting a rebound in corporate earnings. It expects MSCI India earnings growth of 13–14 percent in CY26/CY27 after a prolonged soft patch, noting that the downgrade cycle is largely behind us. They also highlight improving nominal GDP, from 7.7 percent this year toward 9–9.5 percent, which should support revenue and profit growth across sectors. Policy support is another factor that is driving sentiment. Goldman Sachs points to 100 basis points of rate cuts in 2025, the fastest repo easing outside the pandemic since the Global Financial Crisis, alongside a series of regulatory relaxations estimated to free up around 2 percentage points of banking system credit. These measures, it argues, should aid growth recovery over the next two years. JP Morgan expects a further 25bps rate cut in December, noting that combined fiscal and regulatory steps simplify compliance, improve ease of doing business, attract foreign investment, boost innovation, and strengthen the economy’s resilience. Foreign investment flows, which had weighed heavily on valuations, are also turning positive. JP Morgan notes that FIIs have become net buyers, driven by festive season demand and steady corporate earnings. Valuations, a central concern earlier in the year, have also eased. Goldman analysts highlight that India’s relative premium to Asia has normalized from an 85–90 percent peak to around 45 percent, historically signaling moderate outperformance. JP Morgan observes that MSCI India’s premium has compressed to 50 percent, below historical averages, leaving room for a potential re-rating as earnings improve. Goldman expects MSCI India profits to recover to 14 percent next year as EPS stabilizes. JP Morgan’s cycle analysis shows India moving from “Early to Mid cycle,” typically associated with renewed momentum strategies and catch-up phases in relative performance. Brokerages note that sector preferences are increasingly tilted toward domestic cyclicals. Goldman favours financials, consumer sectors (staples, durables, autos), defense, TMT, and OMCs, expecting consumption to benefit from GST cuts, income-tax adjustments, and wage dynamics. Autos, it notes, have rallied 10 percent since the GST announcement but still have growth potential as volumes recover. JP Morgan added that momentum in real estate, cement, paints, and metals, citing robust construction activity, rising disposable incomes, premiumization trends, and government initiatives.