Indian Stock Markets Show Healthier Signs as Earnings Bottom Out: Motilal Oswal
Indian stock markets are in a significantly healthier position compared to last year, with the corporate earnings cycle showing signs of bottoming out, according to a new report from Motilal Oswal Financial Services.
Key Takeaways
- Earnings cycle appears to be bottoming out with double-digit growth expected ahead
- Nifty trading at reasonable valuations of 21.4x earnings, close to long-period average
- Q2 FY26 earnings largely in line with expectations, with moderated earnings cuts
The brokerage’s analysis reveals that earnings for the second quarter of FY26 have largely met expectations, with the intensity of earnings cuts showing moderation. “Although Indian equities have registered a lackluster performance over the past one year, the Indian markets now appear to be in a healthy state versus last year,” the report stated.
Valuations and Growth Outlook
Current valuations present a reasonable picture, with the Nifty trading at 21.4 times earnings – close to its long-period average of 20.8 times. The report emphasized that “any signs of earnings growth acceleration should support valuation expansion.”
Government reforms and domestic policy measures are expected to reset corporate earnings trajectory, while resolution of ongoing tariff issues could serve as a key external catalyst for market performance.
Mid and Small-Cap Segment
While mid- and small-cap valuations remain expensive, Motilal Oswal maintains selective focus on high-conviction SMID (small and mid-cap) names within its portfolio strategy.
Q2 FY26 Performance Analysis
Analysis of 27 Nifty companies shows impressive growth metrics:
- Sales growth: 9% year-on-year
- EBITDA growth: 8% year-on-year
- PBT growth: 5% year-on-year
- PAT growth: 5% year-on-year
The performance exceeded estimates, with five companies surpassing PAT expectations by over 5%, while seven missed targets. On EBITDA metrics, six companies beat estimates and three fell short.
Specific companies including Coal India, Axis Bank, Eternal, Hindustan Unilever (HUL), and Kotak Mahindra Bank dragged overall Nifty earnings lower. Overall, seven Nifty companies reported lower-than-expected profits, five exceeded expectations, and fifteen delivered results in line with projections.
The collective evidence points to improved market conditions compared to the previous year, signaling a positive shift in India’s equity landscape.
