According to BofA Securities, India's equity market faces a challenging combination entering FY27 with earnings growth slashed to 8.5% from the original 14% projection. As reported by ET Now, Amish Shah, Head of India Research at BofA Securities, explained that the West Asia conflict has fundamentally altered the profit trajectory for corporate India. The brokerage had to budget for higher crude oil prices, commodities, fiscal deficit, inflation, interest rates, and currency depreciation, delivering what Shah described as a 'knockdown' to the earnings outlook that investors cannot ignore. Shah noted that "Coming to growth, because of the West Asia conflict primarily, otherwise it was looking like a year that on a low base of FY6 growth, FY7 can be 14-15% earnings growth. But because of the West Asia conflict, crude, commodities, macro factors getting impacted, we now think that Nifty earnings growth for FY7 will only be 8.5%."
According to BofA Global Research, upstream oil and gas companies are better positioned than downstream players if crude oil prices remain elevated and the rupee continues to weaken. Bharat Subramanian, Senior Analyst (Energy) at BofA Global Research, expects oil marketing companies to report negative marketing margins during the current year. The brokerage's base-case assumption is for global crude oil prices to average around $92.5 per barrel during calendar year 2026. Subramanian noted that higher crude prices and rupee depreciation both support earnings for exploration and production companies, while India's push for energy security is creating long-term opportunities in deepwater and ultra-deepwater exploration. Recent policy measures, including amendments to the Oilfields Regulation and Development Act, have improved regulatory stability and could encourage fresh investments in the sector.
Indian banks' return on assets (RoA) is expected to slip to 1.15-1.2% this fiscal from 1.3% last year, driven by lower treasury income and higher pre-emptive provisioning ahead of the ECL framework, according to Crisil. Despite this decline, margins remain stable at about 2.9% for the full year, even though they may soften from last fiscal's exit level. The first pressure point is treasury income, which is likely to soften by 5-10 basis points this fiscal from 1.2% last year as bond yields rise and gains from investment portfolios normalise. The second factor is higher provisioning, with banking sector provisions expected to rise 5-10 basis points, though they should remain benign at below 0.5% as banks make pre-emptive provisions ahead of the ECL regime that kicks in from April 1, 2027.
India's pharmaceutical sector enters FY27 on a strong footing, backed by improving domestic demand, new product opportunities and healthy balance sheets, according to BofA Global Research. Neha Manpuria, Senior Analyst - Pharma, Healthcare at BofA Global Research, highlighted that market growth in India improved to around 10%, helping companies post healthy revenue growth despite concerns around the loss of exclusivity benefits from Revlimid. A major theme for FY27 is expected to be the rollout of Semaglutide-based therapies, with Manpuria noting that "Semaglutide is not only an opportunity in India, but for some companies also outside India." While companies continue to diversify into newer growth segments such as specialty products, consumer healthcare, contract manufacturing and medical technology, the US market remains critical for the sector. Manpuria also highlighted increased merger and acquisition activity across the healthcare ecosystem, with strong cash flows and healthy balance sheets enabling companies to pursue acquisitions beyond traditional generics.
According to BofA Securities, India's stock market may not offer blockbuster returns in 2026, with the brokerage's house view expecting Nifty to deliver 8-9% returns from current levels. As reported by ET Now, Shah noted that "Valuation is not going to be the market driver. Markets will compound equal to earnings growth. If earnings growth is going to be 8.5%, broadly that's the return that you will get from the markets." He emphasized that "Domestic flows are large part of even that 8.5% earnings growth. For whatever reason, if the domestic flows were to stem, then the valuation gap that we were talking about contracts. As a result, we do think that valuation stays. Markets compounds in line with earnings." The focus should shift towards stock-specific opportunities rather than broad market movements, with BofA remaining selective and highlighting around 15-16 high-conviction stocks within sectors tied to preferred long-term themes.
Within the 8.5% aggregate earnings growth, the picture remains highly uneven across sectors. According to BofA Securities, banks (private & PSU) are positioned positively with rate hikes benefiting lending margins and private banks at cheapest valuations in 30 years. Telecom is expected to benefit from tariff hikes driving meaningful earnings uplift, while industrials & utilities show strong order books with 15-20% earnings growth expected. Shah identified "Banks I think is a large part of it. Telecom on the back of tariff hikes that are expected this year is a large part of it. Commodity plays is a large part of it because aluminium, copper, all of these prices are going up." However, IT services remain cautious with growth slumping to low single digits and valuation gaps versus global peers still wide, and autos & CVs face margin pressure from rising commodity costs. Downstream energy represents the largest single drag on Nifty earnings in FY27.
