Subtitle: Analysts expect earnings rebound, renewed foreign flows to support market expansion despite elevated valuations.

Article:

Global financial services firm Macquarie Capital has upgraded its outlook on Indian equities, projecting the benchmark Nifty 50 index to reach 30,000 by 2026—a notable shift from its cautious stance over the past year. The optimism is driven by expectations of a meaningful rebound in corporate earnings over the next two fiscal years.

Aditya Suresh, Managing Director and Head of India Research at Macquarie Capital, acknowledged that market sentiment has been weighed down by sluggish earnings growth. In FY26, revenue growth has hovered around 5%, lagging nominal GDP, while margin pressures have further dampened profitability. Suresh described the environment of "high valuations and no growth" as a persistent headwind.

Looking ahead, however, Macquarie’s bottom-up analysis points to a recovery, with earnings-per-share growth expected to accelerate to mid-teens levels in FY27 and FY28. "We’re feeling more optimistic and comfortable with where expectations are at," Suresh said, adding that this could help draw foreign institutional investors back to Indian markets after a period of limited activity.

Despite rich valuations, Suresh believes strong domestic liquidity and renewed foreign inflows could drive further multiple expansion. He likened the equity demand-supply dynamic to having "the only clearing function is the IPO site," suggesting that investor appetite continues to outpace available supply.

On the booming IPO market, Suresh flagged a structural concern: much of the equity issuance is driven by promoter and private equity/venture capital exits rather than fresh capital for business expansion. Nevertheless, he expects the current annual IPO pipeline of about $20 billion to be sustained by ample market liquidity.

Macquarie maintains a selective sector approach. Financials remain a core overweight, with a preference for private banks over public sector lenders. Top picks in the space include HDFC Bank and ICICI Bank. Suresh also sees opportunities in select non-banking financial companies (NBFCs) and insurance firms.

Beyond financials, Macquarie is positive on the electronics manufacturing services (EMS) sector, highlighting companies like Dixon Technologies for their blend of growth, profitability, and cash flow generation.