Indian equities continue to display resilience despite mixed global cues, with domestic liquidity flows helping offset foreign investor selling, according to Gautam Shah, Founder of Goldilocks Global Research. Speaking to NDTV Profit, Shah said the market's recent reaction appears disconnected from global developments, highlighting the strength of domestic participation. "Domestic inflows are winning over FII selloff," Shah noted, adding that the market remains in good shape from a technical perspective and that the ongoing earnings season has largely delivered positive surprises so far. Latest expert analysis from Abakkus Asset Manager supports this view, with Sunil Singhania, Founder of Abakkus Asset Manager LLP, expecting FII flows to return to Indian equities and mid- and small-cap stocks to outperform significantly.
The second-quarter 2026 earnings season is unfolding with unprecedented momentum, with S&P 500 earnings-per-share projections revised upward by 3.4% during April-June period. Entering mid-July, the consensus year-over-year earnings growth rate stands at a spectacular 23.6%, though taking into account historical beat rates where 78% to 80% of companies habitually clear Wall Street's bar, the most bullish outlook suggests a 30% growth rate. This would represent the highest corporate profit expansion since the post-pandemic boom of late 2021, fundamentally shifting market psychology from fear of late-cycle correction to pricing in an enduring expansion. The analyst community is expecting the S&P 500's second quarter earnings to rise 22%, with positive analyst earnings revisions preceding earnings surprises. Abakkus expects Nifty earnings growth for Q1 FY27 to remain in the mid- to high-single digits, with double-digit growth projected over FY26-FY28.
A primary reason Q2 revisions flipped positive was the energy sector, with companies seeing the largest upward EPS adjustments of any sector during the quarter at +61.5%. Driven by stabilized global demand and shifting supply dynamics, energy companies are acting as a massive cyclical cushion, ensuring the index's topline remains heavily insulated even if consumer-discretionary sectors face minor pinches. Energy-related stocks are forecasted to post the strongest earnings, followed by information technology and semiconductors, then material stocks. Only these three of the 11 S&P 500 sectors are forecasted to post stronger second quarter earnings than the overall S&P 500, so we still remain in a relatively narrow stock market environment. The energy sector's strong performance provides a structural foundation for broader market gains, with 10 out of 11 S&P 500 sectors projected to post positive year-over-year gains and capital actively rotating into equal-weight index segments.
Despite recent caution from global technology companies including IBM and concerns about AI reducing demand for conventional IT services, Sandip Agarwal, Fund Manager and Co-founder of Sowilo Investment Managers, believes the Indian IT sector could deliver 45% to 70% returns over the next three years. Agarwal argues that people have confused disruption with the cycle, noting that every major technological shift over the past two decades has followed similar patterns where initially the disruptor benefits, but IT services companies eventually adapt and become the last beneficiaries of that disruption. He believes Indian IT companies are nearing the end of the AI-led pricing reset, with enterprises increasingly adopting AI leading to more efficient projects requiring fewer billable hours and lower contract values. However, Agarwal estimates that most of the pricing deflation should be absorbed over the next one or two quarters, after which the sector should settle into sustainable 6-7% dollar revenue growth accompanied by 12-13% profit growth. He remains selective within the technology space, continuing to be cautious on engineering research and development companies due to their higher exposure to AI-driven disruption.
Duggad remains positive on NBFCs, automobiles, telecom and consumer discretionary stocks, while staying cautious on capital goods valuations and underweight on IT, FMCG and commodities. Within financials, he expects banks to achieve around 10% earnings growth, mid-sized private banks more than 30% growth, lending NBFCs over 25% growth, and non-lending NBFCs around 20% growth. Abakkus remains bullish on financials, defence and consumer discretionary sectors, with Pratish Krishnan, Senior Fund Manager, highlighting attractive valuations in private banks and large NBFCs. The fund house expects net interest margin (NIM) compression to bottom out soon and remains positive on financials, consumer discretionary, and pharma sectors. Abakkus maintains a cautious stance on IT services due to subdued demand and limited near-term revenue visibility, while also remaining underweight on Oil & Gas sector due to sensitivity to crude oil price movements. The brokerage has shifted 700 basis points of portfolio allocation from largecap stocks to midcap and smallcap stocks, reflecting belief that India's strongest earnings growth opportunities lie outside benchmark indices.
