The Indian stock market is currently traversing a phase of consolidation amid mixed earnings trends, global macro crosscurrents, and evolving structural shifts, particularly in the IT space. While domestic fundamentals remain resilient, sectoral divergences and elevated valuations in pockets warrant a calibrated investment approach. With the Q3FY26 earnings season nearing completion, results from 460 companies within the Nifty 500 indicate broadly in-line performance. Aggregate PAT growth stood at 10% YoY, marginally above expectations of 9%. However, the earnings landscape remains polarised, 235 companies exceeded estimates, while 225 underperformed. One-time provisions linked to the implementation of the new Labour Code also weighed on corporate earnings. India earnings are not able to cross the threshold level of 10%, stuck for some quarters, while market is eyeing for 15% growth to match its credentials.
Sectoral wise Energy, Financials, and Metals provided meaningful support. Energy companies benefited from relatively stable crude prices in last quarter, Financials gained from healthy loan growth and stable asset quality, and Metals were aided by improved realisations and better volumes during global supply control. On the other hand, Communication Services and Consumer Discretionary segments lagged due to moderate demand conditions and margin pressures.
PSU banks have emerged as relative outperformers. Over the last two quarters, they have consistently delivered stronger credit growth than private peers, prompting upward revisions in FY26 and FY27 guidance. In Indian defence, the sector is entering a multi-year capital expenditure cycle backed by record budgetary allocations. The FY26–27 defence budget has increased by over 15% YoY, with capital outlay of ₹2.19 lakh cr aimed at accelerating domestic manufacturing across aerospace, naval, and defence electronics platforms. A selective, staggered accumulation strategy focusing on companies with strong order books and execution visibility is advisable in this sector.
Looking ahead, India earnings growth for the Nifty 50 is projected at 5–6% for FY26, accelerating to 12–15% in FY27, supported by resilient domestic demand, GST rationalisation benefits, and easing tariff-related uncertainties following trade agreements with the US and EU.
FIIs have trimmed exposure to Indian IT stocks during the Q3. The reduction stems from weakening earnings visibility, global macro uncertainty, lengthening deal cycles, and mounting concerns over AI-led disruption. Stronger-than-expected US employment data and a marginal decline in the unemployment rate have further dampened expectations of early rate cuts by the US Fed, pressuring rate-sensitive sectors like IT. Concerns are intensifying that AI tools may structurally compress traditional outsourcing revenue models by reducing headcount requirements and accelerating project timelines. The commentary from companies like Palantir Technologies on AI-driven deflation, especially in areas such as app development, maintenance, testing, and even ERP implementation, has reinforced these apprehensions. The shift toward outcome-based pricing models could create near-term headwinds for deal wins and topline growth.
However, developments such as Infosys collaborating with Anthropic indicate that Indian IT firms are actively twitter-tweetding next-generation AI capabilities into client offerings. This suggests that AI may evolve as an enabler rather than purely a disruptor over the long term. While FY27–28 growth expectations remain muted compared to the prior 2–3 years, subdued valuations offer an entry points for long-term investors as clarity is emerging.
During the week, markets witnessed alternating bouts of optimism and risk-off sentiment based on US-India deal gains, AI threats and opportunities, Q3 results and geopolitical uncertainties. Tensions between the US and Iran leading to rise in Brent crude prices, INR weakness, and subdued FII participation (global sell-off and new lunar year holidays) triggered volatility later in the week. In a nutshell, the Indian market is not broadly overheated but is clearly selective. Earnings growth remains mixed, AI disruption is reshaping IT dynamics, PSU banks are enjoying cyclical strength, and defence is backed by structural policy support. For investors, disciplined stock selection and staggered deployment amid volatility remain key strategies in navigating FY26–27.
The author Vinod Nair is the Head of Research, Geojit Investments Ltd.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
