According to Krishnan VR, Chief of Quantitative Research at Marcellus Investment Managers, it is unlikely that aggregate earnings for the Nifty 50 will grow beyond 15 percent in FY26.
“With core inflation hovering around 3.5 percent, I don’t see much scope for revenue growth exceeding 12 percent, at least for most domestic-facing businesses,” he said in an interview with Moneycontrol.
On the broader market outlook, Krishnan flagged geopolitical tensions as a key uncertainty. “The ongoing war in the Middle East is a wildcard. If oil prices remain elevated, the resulting uptick in inflation expectations could offset India’s otherwise benign domestic macro environment,” he added.
Do you expect earnings growth to be in the 15–20 percent range in FY26, as opposed to the current expectation of 12–13%, given the RBI’s strong push in its last meeting, supportive measures in the Union Budget, and subdued commodity prices?
It is difficult to see aggregate earnings for Nifty 50 growing beyond 15% in FY26. GDP growth moderated last year, and the current estimate is for growth to be around 6–6.5 percent this year and the next. With core inflation trending around 3.5 percent, I do not see much scope for revenue growth beyond 12 percent, at least for most domestic-facing businesses. Most listed corporates have reduced debt funding considerably over the last decade, so any savings on financing costs due to lower rates would be marginal at best.
Which sectors do you see taking the lead in driving earnings growth in FY26?
NBFCs, especially vehicle financiers and those with a longer duration of assets versus liabilities, are well-placed to benefit from recent rate cuts and easing liquidity. Retail and auto stocks within consumer discretionary should also see benefits from lower EMIs, easing inflation, and reduced income tax outgo due to changes announced in the recent Budget. Broader financial services plays in insurance and wealth management should also see decent earnings growth.
Do you see significant opportunities in SMIDs over large caps from a 1–2 year perspective?
Valuations in the small- and mid-cap space appear overdrawn, both in absolute terms and relative to their historical averages. However, it is equally important not to generalise from aggregate valuations because, unlike large caps where there are only 100–125 stocks to pick from, in the SMID space, one can still find well-run, profitable, and high-growth companies from a wide pool of over 700–800 stocks.
Beyond the next 1–2 years, I think there is significant scope for returns in SMIDs if one takes a more selective, valuation-aware approach focusing on company fundamentals, instead of broad themes.
Do you expect domestic flows to remain strong and continue supporting the market, despite inconsistent FII flows?
Yes, domestic mutual fund SIP flows have remained largely resilient over the last year against the backdrop of rather average market returns and a market drawdown between September 2024 and February 2025. India is seeing a structural trend of financialization aided by easy investor access to mutual fund products and improving investor awareness.
RBI’s data also shows that the share of households in bank term deposits has dropped by 4.8% over the last five years, even as the AUM of the mutual fund industry has grown by over three times during the same period.
Do you believe there are no major risk factors on the horizon that could erase the gains made since the April lows?
Geopolitical risks seen against the backdrop of the ongoing war in the Middle East are a wildcard. Since India imports more than 80% of its oil requirements, elevated oil prices could hurt the margins of downstream refiners, specialty chemical companies, among others. If prices stay elevated, then the resultant higher inflation expectations can offset the rather benign domestic macro environment, too.
Also, while the risk of reimposition of reciprocal tariffs after the 90-day pause in July remains, I think at least a part of this risk has already been factored into the prices of affected stocks and sectors.
Do you strongly believe both the Federal Reserve and the RBI are likely to cut interest rates by at least 50 basis points by the end of 2025?
The RBI governor has stated recently that any decision on further rate cuts would be data-driven, with space for additional cuts if inflation eases further. I think oil prices would have a significant bearing on inflation risks through the year, and hence on the RBI’s decision on further rate cuts.
In the US, core inflation has eased, while employment data shows healthy job creation in May. This is one full month after the tariff-related uncertainty started. We have to wait to see the inflationary impact of tariffs, immigration policy, and fiscal spending under the current administration. Despite all these factors, if US inflation continues to fall, then we might see one or even two rate cuts from the Fed by the end of this year.
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