Earnings growth, mkt returns to double in 4 years: BoAML

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26 Aug, 2025 12:21

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Indian equities have been on a roll since May on hopes of big bang reforms by the new government. Year-to-date, Sensex is the best performing market among major global markets. Research firm Bank of America Merill Lynch (BoAML) remains bullish on Indian equities on the long-term, but cautions of a near-term jerk.

"Post its strong performance, we think the markets would be range bound near term and may correct around 5 percent over the next two months, giving up half of its post-election result gains, as the pace of reforms is slower than market initially built in," it says in its recent report. It recommends buying every dip.

According to BoAML, India Inc earnings have turned the corner and are likely to double over the next four years and market returns could mirror earnings growth.

Also Read: Nifty to hit 10,000 by next Budget, says Raamdeo Agrawal

Here's an excerpt from the report 

3 indicators why earnings will improve

> We believe the cyclical recovery coupled with policy reforms would eventually lead to improvement in profitability of Indian corporates.

> We could see a sharp recovery in earnings as the economy slowly recovers. Higher capacity utilization and the consequent operational leverage coupled with better pricing power will drive margins.

> We believe the worst in earnings is behind us and expect EPS growth to recover from here on. This would be led by recovery in sales growth as economy picks up and  improvement in EBITDA margins as utilizations increase.

Sectoral Bets

Autos, cement and energy will drive earnings rebound. We see sharp mean reversion in margins in our overweight sectors - auto sector (the four – wheelers and commercial vehicles), cement, industrials and the oil and gas sector as reforms reduce subsidy burden. Other overweight sector - financials will be the beneficiary of improving profitability in the domestic sectors.

BoAML advises buying ICICI, SBI, Maruti and OIL.