‘Domestic demand revival spurs earnings upgrades; Nifty poised for 29K-level ahead’

Mumbai/Kolkata: India appears to be entering a “long-awaited earnings upgrade cycle, driven by resilient corporate performance, strong festive demand, supportive policy actions, and an improving macroeconomic environment”, a report said on Wednesday.

Financial services organisation PL Capital, in its latest India Strategy Report titled “Earnings upgrade cycle might begin”, said: “After five consecutive quarters of downward revisions, Nifty earnings have finally reversed course, showing upgrades of 0.7%, 0.9% and 1.3% for FY26, FY27 and FY28 respectively. This marks a significant shift in sentiment and establishes early but clear signals of a broad-based revival in corporate profitability.”

Nifty has risen 4% in the past three months, breaking out of a prolonged consolidation phase. The report attributes this shift to better-than-expected 2Q26 corporate earnings, hopes of progress in resolving tariff disagreements with the US, and a visible resurgence in domestic consumption during the ongoing festive and wedding season. This revival is also supported by GST rate rationalization introduced in September 2025, which reduced effective retail prices across several consumer categories and boosted spending across urban and rural markets, it added.

Using a 15-year average PE of 19.2x and September 2027 EPS estimate of 1,515, the report pegs the 12-month Nifty target at 29,094, with a bull-case valuation of 30,548 and a bear-case scenario of 26,184. The model portfolio remains overweight on banks, healthcare, consumer goods, automobiles, and defence, while maintaining underweight positions in IT services, commodities, and oil & gas.

Corporate earnings for the quarter have been resilient. Companies within the coverage universe recorded growth of 8.1% in sales, 16.3% in EBITDA and 16.4% in PAT. Importantly, EBITDA and PAT surpassed estimates by 5% and 7.1% respectively, leading to the first upgrades in Nifty EPS since August 2024. Sectoral performance was notably strong for hospitals, capital goods, cement, electronics manufacturing services (EMS), ports, NBFCs, and telecom. Commodity-linked sectors, particularly cement, metals, and oil & gas, posted robust profit expansions in the range of 33–58%.

While government capital expenditure has been a major pillar of economic momentum over the past four years—growing more than threefold since the pandemic—the report cautions that the second half of FY26 may see some moderation. Capital spending in 1H26 has already reached 52% of the annual target, compared with 41% in the previous year. However, the combination of GST rate rationalization, higher fertilizer subsidies, and modest direct tax collections could limit the government’s ability to overshoot its current capex budget. Nonetheless, the report states that domestic demand is now better positioned to drive economic momentum due to income tax cuts, 100 basis points reduction in interest rates, a normal monsoon, and 12-year low inflation.

Diwali 2025 delivered one of the strongest festive cycles in recent years, with total seasonal sales rising an estimated 25% year-on-year over the Rs 4.25 trillion base in 2024. Traditional retail accounted for nearly 85% of all transactions, while services including hospitality, logistics, travel and event management added about Rs 650 billion, the report said.