Nifty EPS Growth Projected at 4% in FY26 Amidst Ongoing Geopolitical and Oil Price Uncertainty

India's Earnings Recovery May Remain Subdued in Near Term

India's earnings recovery could remain subdued in the near term, with Nifty EPS growth pegged at just 4 percent for FY26, as rising crude prices, geopolitical tensions, and weather risks weigh on corporate profitability, according to PL Capital.

The muted earnings outlook comes even as the brokerage projects a medium-term earnings CAGR of 15 percent through FY28 and maintains a Nifty target of 27,080, highlighting a growing divergence between near-term pressures and longer-term optimism.

While headline projections suggest strong compounding over the next few years, the immediate outlook remains weak. PL Capital noted that earnings visibility has only "marginally improved," with FY26 growth limited to low single digits, reflecting pressure from rising input costs and global uncertainty. This suggests that much of the expected earnings acceleration is back-ended, leaving markets exposed to downgrades if macro risks persist.

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Key Macroeconomic Risks

A sharp rise in crude oil prices is emerging as the key swing factor. India imports nearly 85 percent of its oil needs, and higher prices could increase the import bill by over $70 billion annually. This is expected to push inflation above 5 percent and weigh on both consumption and industrial activity. More critically, the second-order impact of higher crude prices – through freight, insurance, and input costs – is likely to compress corporate margins across sectors.

The report flags an unusual convergence of risks. Geopolitical tensions, particularly in West Asia, have already triggered foreign investor outflows and contributed to a 6.6 percent decline in the Nifty over the past three months. At the same time, the possibility of an El Niño-led weak monsoon could disrupt rural demand, impact agricultural output, and add to food inflation pressures. Together, these factors create a challenging backdrop where inflation, demand, and margins could come under simultaneous stress.

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Early signs of this stress are visible in corporate performance. For Q4FY26, revenues are expected to grow 11.3 percent, but profit growth is estimated at just 5.7 percent, indicating margin compression as costs rise faster than topline growth.

Valuations reflect caution, not comfort. The Nifty currently trades at around 17 times one-year forward earnings, a 12.4 percent discount to its long-term average. While this suggests valuations are not stretched, PL Capital cautions that the discount reflects existing macro risks, and any further deterioration could trigger earnings downgrades rather than multiple expansion.

Despite the near-term headwinds, domestic growth drivers remain intact. Capital expenditure continues to see strong momentum across defence, infrastructure, renewables, and manufacturing. Credit growth has also picked up to over 14 percent, led by MSMEs and retail segments. These factors underpin the brokerage's medium-term earnings growth expectations.

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