1 week ago
India's Earnings Breadth Widens as Valuations Improve Amid Investor Return
A report says Indian companies had one of their strongest profit periods in several years.
Profits for large, mid-sized and small companies all grew, with smaller companies seeing especially strong growth.
This helped analysts raise some of their expectations for the financial year.
Indian shares are still not cheap everywhere, but large companies look more reasonably valued than before.
Indian stocks also became less expensive compared with stocks in other emerging countries.
Foreign investors returned to Indian markets in August, and Indian institutions continued buying shares.
Mid-sized and smaller companies gained even though the Nifty 50 index fell.
The report linked the broad gains to stronger investment activity in the economy.
India's Q1 FY27 corporate earnings reached a ten-quarter high, according to PL Asset Management.
Nifty profit after tax grew at its fastest pace in 10 quarters, while mid-cap and small-cap profit rose 20% and nearly 28% year on year.
India's equity valuation premium over emerging markets narrowed to 20%, near a decade low.
Foreign institutional investors recorded their strongest monthly inflow since September 2024, while domestic institutions extended a 38-month buying streak in August.
Capital goods, autos, metals, financials and healthcare outperformed, while IT, chemicals and real estate lagged.
- Who
- Indian companies, domestic institutional investors, foreign institutional investors and equity-market participants.
- What
- A PL Asset Management report said corporate earnings strengthened, valuations became more comfortable in parts of the market and foreign investors returned in August.
- Where
- India's equity market.
- When
- The report discussed Q1 FY27 earnings and August market activity; the foreign inflow was the strongest since September 2024.
- Why
- The report attributed the broad earnings performance partly to a running investment cycle, with Gross Fixed Capital Formation growing 11.9% in real terms.
Positive Interpretation
Cautious Interpretation
Market valuations
Positive Interpretation
Large-cap valuation comfort has improved, and India's premium over emerging markets has fallen to 20%, near a decade low.
Cautious Interpretation
Parts of the broader market remain demanding, so valuations are not uniformly comfortable.
Foreign investor return
Positive Interpretation
Strong foreign inflows in August helped offset about Rs 2.1 lakh crore of selling earlier in the year and could support further price gains.
Cautious Interpretation
Aggregate foreign ownership remains near a multi-year low as a share of market capitalization, suggesting the August return was rotation and re-engagement rather than a wholesale return.
Market breadth
Positive Interpretation
Capital goods, autos, metals, financials and healthcare all beat expectations, indicating broad-based earnings strength and an active investment cycle.
Cautious Interpretation
The Nifty 50 still fell 1.24%, while IT, chemicals and real estate lagged, showing that performance was uneven across sectors.
Key facts
- Q1 FY27 earnings
- Corporate earnings reached a ten-quarter high.
- Nifty profit growth
- Nifty profit after tax grew at its fastest pace in 10 consecutive quarters.
- Mid-cap profit growth
- Mid-cap profit after tax increased 20% year on year.
- Small-cap profit growth
- Small-cap profit after tax rose nearly 28% year on year.
- Valuation premium
- India's premium to emerging markets narrowed to 20%, near a decade low.
- Institutional buying
- Domestic institutional investors extended a 38-month net buying streak in August.
- Investment activity
- Gross Fixed Capital Formation grew 11.9% in real terms.
Quotes
PL Asset Management
Asset management firm whose report analyzes Indian earnings and valuations
“Stocks with meaningful foreign holding have grown from 900 to 1,300 over four years, even as aggregate foreign ownership sits near a multi-year low as a share of market cap — rotation and re-engagement rather than a wholesale return, leaving more room than usual for incremental buying to move price”
thehansindia.com
“Indian equities are no longer uniformly expensive, with large-cap valuation comfort improving even as pockets of the broader market stay demanding. India's valuation premium to emerging markets has compressed to 20 per cent, near a decade low”
thehansindia.com
Sources
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