India’s equity market is becoming increasingly difficult to justify relative to other emerging markets as elevated valuations continue to outpace earnings growth, prompting Ambit Capital to maintain a defensive investment stance despite signs of an earnings recovery.
In its latest weekly strategy note, the brokerage argues that India currently offers one of the weakest risk-reward profiles among major emerging markets. While corporate earnings have begun to improve after several subdued quarters, the pace of earnings growth remains insufficient to justify current valuations, particularly when compared with peers such as South Korea and Taiwan.
Ambit bets on large caps, defensives
Adding to the caution is renewed geopolitical uncertainty following the resurgence of the West Asia conflict, which has strengthened the brokerage’s preference for large cap companies with stronger balance sheets and earnings visibility over small and midcap stocks.
“Our model portfolio remains tilted toward defensive stocks and large caps,” Ambit said, arguing that the combination of expensive valuations, weak earnings revisions and geopolitical risks leaves little room for disappointment in Indian equities.
India stands out for high valuations but weak growth
Ambit’s central argument is that India’s valuation premium is no longer supported by its earnings outlook.
The brokerage noted that the Nifty currently trades at 20 times trailing earnings, while consensus expects only 3% one-year forward earnings growth in US dollar terms. That combination places India in what Ambit describes as the “high valuation, low growth” quadrant among emerging markets.
The comparison becomes starker when viewed alongside Asia’s other major equity markets.
| Emerging market comparison | Trailing P/E (x) | 1-year forward EPS growth |
| India (Nifty) | 20.0 | 3% |
| South Korea (KOSPI) | 22.0 | 203% |
| Taiwan | 30.0 | 68% |
Source: Bloomberg, Ambit Capital research
While Taiwan trades at a richer valuation than India, investors are paying for significantly stronger earnings growth. South Korea, meanwhile, trades at only a marginal premium to India while offering more than 200% expected earnings growth over the next year, largely driven by technology companies benefiting from the global artificial intelligence investment cycle.
According to Ambit, India lacks similar AI-linked companies capable of generating comparable earnings upgrades, resulting in global capital increasingly gravitating towards markets where the next leg of growth is unfolding.
Ambit continues to favour large cap compounders
Reflecting its cautious market view, Ambit’s model portfolio remains concentrated in large-cap businesses with relatively predictable earnings and stronger balance sheets.
The brokerage retains Buy ratings on Mahindra & Mahindra, Ather Energy, HDFC Bank, State Bank of India, ICICI Bank, Axis Bank, Max Financial Services, Godrej Consumer Products, Marico, Sun Pharmaceutical, Max Healthcare, Fortis Healthcare, HealthCare Global, Tech Mahindra, PB Fintech, Reliance Industries, Bharti Airtel and Indus Towers.
It maintains Sell recommendations on UltraTech Cement, Britannia Industries, HCL Technologies, TCS and Infosys, while Larsen & Toubro and ITC remain unrated.
Interestingly, Tech Mahindra is the only major IT services company in Ambit’s preferred portfolio, reflecting the brokerage’s stock-specific rather than sector-wide approach to technology.
Earnings estimates continue to move lower
The weak growth outlook is also reflected in analyst earnings revisions.
Ambit highlighted that consensus estimates for Indian companies have been cut sharply over the past year, with CY26 earnings estimates reduced by 16% and CY27 estimates lowered by 15%, making India one of the weakest performers among the emerging markets tracked by the brokerage.
Rather than seeing earnings upgrades that typically accompany expensive markets, India continues to witness downgrades, weakening the investment case despite resilient domestic macroeconomic conditions.
The brokerage said this divergence explains why it continues to favour selective stock picking instead of broad market exposure.
June quarter earnings signal recovery after a slow spell
Despite its cautious medium-term market outlook, Ambit acknowledged that corporate earnings are beginning to improve.
Growth in sales, operating profit and net profit for both the Nifty 50 and the broader NSE100 is expected to accelerate in the June quarter after three relatively subdued quarters.
Nifty 50 (excluding oil & gas)
| Quarter | Sales | EBITDA | PAT |
| Jun-25 | 6% | 9% | 5% |
| Sep-25 | 10% | 9% | 8% |
| Dec-25 | 9% | 7% | 3% |
| Mar-26 | 15% | 7% | 4% |
| Jun-26E | 20% | 8% | 10% |
NSE100 (excluding oil & gas)
| Quarter | Sales | EBITDA | PAT |
| Jun-25 | 4% | 10% | 10% |
| Sep-25 | 7% | 11% | 14% |
| Dec-25 | 9% | 10% | 6% |
| Mar-26 | 12% | 4% | 9% |
| Jun-26E | 22% | 7% | 10% |
Source: Ace Equity, Ambit Capital research
The projected acceleration suggests that the earnings cycle may be stabilising after a prolonged period of moderation. However, Ambit cautioned that improving earnings alone may not be enough to sustain current market valuations if upgrades fail to gather momentum over the coming quarters.
Financials drive the earnings surprise
Results reported so far indicate that banks have been the primary source of strength during the June quarter.
Companies within the Nifty have delivered 17.5% sales growth, 2.5% EBITDA growth and 10.5% growth in net profit, according to data compiled until July 26. Revenue exceeded estimates by 3.1%, although EBITDA remained 1.9% below expectations, suggesting that margins continue to face pressure despite stronger demand.
The bulk of the positive surprise came from banking and financial services companies.
The BFSI sector recorded 30.7% sales growth, substantially outperforming expectations, while companies outside financial services delivered 14.4% sales growth, with profits marginally missing estimates.
Information technology companies also produced mixed results. Revenue rose 13.8%, while operating profit fell short of expectations. Net profit, however, exceeded estimates by 11.9%, reflecting better cost control even as demand conditions remained uneven.
Corporate earnings remain highly stock-specific
The early earnings season has reinforced Ambit’s view that investors should focus on individual companies rather than broad sector calls.
Among the standout performers, JSW Steel Ltd. reported a 152.6% jump in profit year-on-year, significantly ahead of expectations as improving steel spreads supported profitability. Bajaj Auto also delivered a strong quarter with 37% revenue growth and 42.3% growth in profit, while lenders including ICICI Bank, Kotak Mahindra Bank, Axis Bank and Shriram Finance reported healthy earnings growth.
Consumer companies also produced encouraging numbers. Nestle India reported 25.2% revenue growth and almost 50% growth in profit, while UltraTech Cement maintained double-digit growth in both revenue and earnings.
The healthcare sector, however, remained under pressure. Cipla’s profit declined 39.2%, while Dr Reddy’s Laboratories reported a 68.6% fall in earnings.
Among the biggest disappointments, InterGlobe Aviation swung to a loss of Rs 200 crore compared with a profit of Rs 2,200 crore a year earlier despite recording nearly 20% revenue growth. Eternal posted a 268% rise in profit to Rs 100 crore, but still significantly missed Ambit’s estimate of Rs 300 crore, highlighting the elevated expectations surrounding new-age technology companies.
Markets expensive despite recent pullback: Ambit
Even after a recent pullback, Ambit believes Indian equities remain expensive by historical standards.
The brokerage noted that India’s market capitalisation-to-GDP ratio, popularly known as the Buffett Indicator, eased to 126% from 129% earlier in July. However, the measure remains 26% above its 10-year average of 100%, indicating that equity valuations continue to run ahead of the underlying economy.
While Ambit’s proprietary valuation indicator suggests markets are closer to their long-term average than the Buffett Indicator implies, the brokerage believes neither measure points to a market that can comfortably absorb further earnings disappointments. That reinforces its cautious stance even as the earnings season improves.
Foreign investors return after four months, but remain selective
Foreign institutional investors have turned buyers again after four consecutive months of net selling, providing some relief to domestic markets.
According to Ambit, overseas investors purchased a net US$0.3 billion of Indian equities during the week ended July 24, while domestic institutional investors also invested US$0.3 billion, extending their buying streak to 14 consecutive weeks.
For July so far, FIIs have bought US$1.7 billion, reversing four straight months of outflows, while domestic investors have invested another US$2.5 billion, extending a remarkable 36-month buying streak.
The brokerage noted, however, that foreign buying remains highly selective.
FII sector flows in CY2026
| Sector | Flow (US$ million) |
| Metals & Mining | +2,037 |
| Capital Goods | +2,026 |
| Others | +1,525 |
| Consumer | -4,465 |
| BFSI | -11,634 |
| Total | -27,557 |
Source: NSDL, Bloomberg, Ambit Capital research
While metals and capital goods have attracted the strongest foreign inflows this year, banking, consumer, IT and oil & gas continue to witness sizeable withdrawals. During the first half of July, consumer stocks and metals attracted fresh buying, whereas auto and media & telecom remained the weakest sectors for overseas investors.
Earnings revisions remain sharply divided
The June-quarter earnings season has also triggered wide divergences in analyst estimates.
Adani Energy Solutions topped the list of weekly upgrades with a 12.3% increase in FY27 earnings estimates, followed by SRF (6.2%), Bajaj Auto (5.4%), Mahindra & Mahindra Financial Services (5.3%) and TVS Motor (5%).
At the other end of the spectrum, InterGlobe Aviation saw the sharpest downgrade, with FY27 earnings estimates slashed 25.5% following its quarterly loss. Eternal followed with a 19% downgrade, while Bharat Petroleum, Dr Reddy’s Laboratories and Tata Communications also witnessed meaningful earnings cuts.
For the year so far, Grasim Industries has received the largest earnings upgrade among Nifty 200 companies, while HPCL, InterGlobe Aviation, Bharat Petroleum, Ambuja Cement and Indian Oil feature among the biggest downgrades.
Weekly market action reflects selective buying
Sectoral performance during the week also reflected the market’s preference for defensive pockets.
FMCG and auto stocks outperformed, while real estate and financial shares remained under pressure. Midcap stocks outperformed both large caps and small caps during the week, although small caps continue to lead the market on a year-to-date basis.
Among the biggest gainers in the NSE200 were Mahindra & Mahindra Financial Services, TVS Motor, United Spirits, Bajaj Auto, Astral, HCL Technologies and Vedanta.
The weakest performers included Motilal Oswal Financial Services, Oracle Financial Services Software, HDFC Bank, Swiggy, Adani Green Energy, Axis Bank and SRF. Around 64% of NSE200 stocks declined during the week, an improvement from 66% in the previous week.
Derivatives positioning favours financials
Derivative data suggests traders are selectively adding long positions in financial stocks while increasing bearish bets on certain consumer and banking names.
The largest long build-up was seen in NHPC, NMDC, Federal Bank, Bajaj Holdings and Canara Bank, whereas GE Vernova T&D India, Bandhan Bank, SRF, Radico Khaitan and Motilal Oswal Financial Services recorded the strongest short build-up during the week.
Quantitative strategies continue to identify selective opportunities
Ambit said its quantitative earnings revision strategy has outperformed the BSE200 index in three of the past five quarters and has historically generated annual excess returns of 4.4% in large-cap stocks and 5.5% in mid-caps since 2005.
Among its preferred large-cap names under this framework are Titan, ONGC, Trent, Samvardhana Motherson, Tech Mahindra and Apollo Hospitals.
The brokerage’s momentum strategy, which combines price momentum with a trend-quality filter, has historically generated around 6% annual excess returns, outperforming conventional momentum strategies. Current high-conviction names include Adani Power, Cummins India, Hitachi Energy India, CG Power, Siemens Energy India and GE Vernova T&D India.
Fiscal deficit seen under control despite revenue pressure
On the macroeconomic front, Ambit estimates the government could face a Rs 1.5 lakh crore revenue shortfall this fiscal, largely because of weaker income tax and excise collections, along with nearly Rs 60,000 crore of additional contingency expenditure.
Even so, it expects the Centre to adhere to its FY27 fiscal deficit target of 4.3% of GDP, largely by reprioritising expenditure while protecting infrastructure spending.
Oil remains a key external risk
The brokerage said geopolitical developments in West Asia continue to warrant close monitoring.
Although a tentative US-Iran peace roadmap had briefly reopened the Strait of Hormuz to commercial shipping, Ambit cautioned that supply disruptions remain a significant risk. Given India’s dependence on imports for nearly 85% of its crude oil requirements, the brokerage continues to expect average crude prices of US$86-90 per barrel during FY27.
Conclusion
Ambit’s latest strategy note argues that Indian equities are entering a phase where valuation discipline matters more than broad market optimism.
With India continuing to trade at one of the highest valuation premiums among emerging markets despite one of the weakest forward earnings outlooks, Ambit believes investors should resist chasing the broader market and instead focus on companies capable of delivering sustained earnings upgrades.
That explains the brokerage’s continued preference for large cap stocks, selective sector exposure and disciplined stock picking over aggressive positioning.
Disclaimer: The information provided in the preceding summary is based on third-party market research, strategy notes, and commentary published by Ambit Capital. This content is presented strictly for informational and educational purposes and does not constitute financial, investment, legal, or tax advice.
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