According to Bank of India Mutual Fund chief investment officer Alok Singh, corporate earnings are expected to deliver low double-digit growth in FY27. As reported by Business Standard, the June-quarter earnings season has been better than expected so far, with sectors like public sector banks, capital goods, and capital market-linked businesses delivering strong operational and earnings performance. Singh expects earnings momentum to remain healthy through the second half of the financial year, supported by improving domestic demand, government capex, and favourable macroeconomic conditions. However, Sanlam Multi Manager International's chief investment officer Paul Wilson presents a more cautious perspective, noting that earnings have disappointed, coming in 9% lower than expected, and over the last 12 months have been between 6-8%, which limits the scope for market re-rating despite lower valuations.
The equity market has remained range-bound in recent weeks due to renewed geopolitical tensions in West Asia, which have weighed on sentiment despite healthy domestic economic indicators. According to Singh's analysis reported by Business Standard, while high-frequency economic indicators continue to point to healthy economic activity and improving earnings, global uncertainties are currently exerting a greater influence on market direction. Among sectors, financials are well positioned given attractive valuations, healthy balance sheets, and earnings growth prospects, while automobiles benefit from rising discretionary spending and improving consumption trends. Wilson specifically highlights financials as one of the areas more favourable, given the economy's strong performance and credit growth, while noting that India is still trading at a premium to the rest of emerging markets, making the question of whether that premium is fair critical for investors.
Global capital's return to India remains limited, with Wilson stating that foreign investor purchases in July after a gap are not yet the beginning of a more durable return of global capital to India. Higher US Treasury yields above the 5% mark make emerging markets like India more challenging tactically, with Wilson noting that India is priced quite highly, with pockets of extreme valuations. However, he identifies emerging markets over developed markets as preferred areas, citing that AI manufacturers will face challenges like access to raw materials and energy, making energy and resource sectors well-positioned over the next decade. Wilson emphasizes that within India, there are areas with very good fundamentals, with specific IT companies benefiting from AI opportunities, though he remains cautious about the sector's overall prospects.
The Indian rupee's future movement largely depends on US dollar trends and policy decisions, with Wilson noting that a large part depends on US policy decisions. Through 2025, dollar weakness versus emerging markets was observed, but if the US increases interest rates to curb inflation, the dollar will strengthen, which would pressure emerging market currencies like the rupee. Wilson expects the rupee to depreciate over time due to India's higher inflation expectations compared to the US. Key risks facing Indian equity markets include adverse monsoon outcomes that could impact rural demand and agricultural output, global economic slowdown, currency volatility, and unexpected shifts in monetary policy across major economies. Crude oil prices remain critical for macroeconomic stability, making developments in West Asia a key driver of investor sentiment.
