The Indian equity market has continued to lag global peers so far this year. The Nifty is down about 3% year-to-date in dollar terms. Nomura, however, believes the risk-reward for Indian equities remains favourable. On the earnings front, the brokerage sees low risk to near-term profit expectations, even after India Inc took a hit from labour code-related provisions in Q3FY26.
Here is why Nomura expects corporate profits to grow at a healthy pace over the next two years, with earnings seen rising 16% in FY27 and 14% in FY28.
#1. Recovery in nominal GDP, capex to aid earnings growth: Nomura
Nomura highlighted that the aggregate profit after tax of 255 companies, under their research universe, grew 7.8% year-on-year (YoY) in Q3FY26. After adjusting for labour code-related provisions, earnings growth stood at a stronger 12.4%. “We see low risk to near-term consensus earnings estimates,” Nomura noted.
It also noted that EBITDA margins held broadly stable at around 22% in Q3. Nomura said companies managed to absorb higher costs, including labour code-related provisions, without any major margin erosion.
Stable margins, combined with strong sales growth, helped support overall profitability.
#2. Capex recovery in near-term
The brokerage also expects earnings to be supported by a recovery in nominal GDP growth, a gradual pickup in private sector capital expenditure, potential revival in exports and sustained consumption momentum.
Private sector capital expenditure has remained subdued over the past two to three years, with capex-to-depreciation ratios at historical lows. However, Nomura said company commentary suggests a potential recovery in capex in the near term, which could provide further support to earnings growth.
Data centres, infrastructure and manufacturing-related investments are expected to be key drivers of this recovery.
#3 Lower US tariffs may lift near-term export demand: Nomura
Nomura noted that lower US tariffs are expected to support near-term export demand, particularly as global customers advance orders amid policy uncertainty.
India is currently facing a 10% tariff, announced by Donald Trump, after a US court ruling limited the president’s ability to impose tariffs by invoking the International Emergency Economic Powers Act (IEEPA).
“The exports to the US will gain from lower tariffs and uncertainties on future tariff rates can drive near-term demand from customers, in our view,” said Nomura in its report.
However, Nomura noted that rise in commodity prices and deflationary pressure on IT services are key risks to earnings estimates.
#4. IT sector drag overdone
Nomura believes that concerns around AI-led disruption and deflationary pressures which has dragged IT services stocks down are premature and expects IT companies to realign their business models and benefit from new opportunities over time.
“We aren’t that bearish on the outlook, and think the concerns are premature and overdone,” Nomura noted.
“We think the risk reward is favorable and retain our positive view. We are also positive on financials, cement, consumer discretionary, auto ancillaries, telecom, pharmaceuticals,” Nomura added.
Conclusion
Nomura said that despite headwinds the earnings are expected to have support from a recovery in the nominal GDP growth in FY27E, cyclical recovery in private capex, potential revival in exports and sustained momentum in consumption in the near-term.