Margins have not peaked yet; see opportunity for margin expansion in nearly 27 sectors: Elara Securities

The margin resilience comes as Nifty earnings begin to recover after a subdued year. “Last year, Nifty probably would have hardly seen 3–5% earnings growth,” said Elara Securities’ Deputy Head of Research Garima Kapoor.

• Elara Securities predicts continued margin growth, against market consensus.
• Margins in 27 of 38 sectors to improve by FY27E due to scale and cost reductions.
• Earnings growth forecasted at 14-15% for FY27E and FY28E.

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Contrary to market consensus, margins in India have not peaked and still have room to expand, according to Elara Securities. Speaking at a media event to discuss the market outlook, Harendra Kumar, Managing Director at Elara Securities noted that they had a counter-consensus call to the larger market when it comes to margins. “There is some steam left,” he noted.

Of the 38 sub-sectors under coverage, Elara estimates that margins are projected to improve in 27 sector. Internet, Agro Chemicals, Cement and Construction Materials, Real Estate, Utilities, and Hotels and Travel show the strongest momentum into FY27E, reflecting scale benefits, easing cost pressures, and tighter operating discipline.

By contrast, margin progress remains limited in Pharmaceuticals, IT Services, Defence, and Capital Goods, where pricing pressure, wage inflation, or execution intensity continues to restrain operating leverage. For Elara coverage universe, excluding Financials, expect EBITDA margins are expected to rise from around 15% in FY25 to ~17% by FY27E, implying roughly 200bps of expansion. Similarly, at the net profit level, including Financials, expect margins to expand from ~12% in FY25 to 13% by FY27E, a gain of ~140bps, with 40bps of this improvement expected in FY27E, the brokerage notes.

The margin resilience comes as Nifty earnings begin to recover after a subdued year. “Last year, Nifty probably would have hardly seen 3–5% earnings growth,” said Elara Securities’ Deputy Head of Research Garima Kapoor.

Kapoor said recent results suggest the earnings downgrade cycle may be ending. “Q2 was the first quarter where broadly, at an aggregate level, most earnings estimates were met.” Elara Securities estimates that after a subdued FY26E, the earnings cycle is poised to re-accelerate, compounding at 14-15% through FY27E and FY28E.

FII flows

A key macro driver behind the improved outlook is a rotation away from the AI-led global rally. “The breakneck pace at which the AI rally took place, we will probably move into a contra-AI trade now,” Kapoor said.

She said the shift could benefit undervalued markets and under-invested sectors. “That contra-AI trade is enough to get undervalued markets and under-invested sectors to get some money,” Kapoor said, adding that financials and markets like India stand to gain.

Kapoor linked the return of foreign investor interest to growth rather than valuations alone. “Earnings will come first. Earnings will come from nominal GDP. Then FPI flows,” she said.

She noted that foreign inflows failed to return last year despite valuation corrections because growth was weak. “The only reason you did not get money even after correction last year was because your nominal GDP was struggling at 8 percent,” Kapoor said.

Optimism for EMs, Gold, Silver Kapoor added emerging markets are entering a more supportive phase. “In global asset classes, the big call that we are giving is that it is a supportive year for emerging markets,” she said.

She added that they believe that the debasement cycle will continue and remain supportive for commodities. She noted that while both gold and silver have room to rise, silver could outperform in the near term as gold becomes relatively expensive.

Additionally, silver could benefit from highlighted tightening supply dynamics such as export restrictions by China and its designation as a critical mineral in the US, driven by strong demand from AI and industrial applications and limited supply. On gold, she said the firm is targeting levels of 5,200 to 5,400 by March 2027. Base metals are also emerging as opportunities, describing copper as a potential dark horse due to extreme supply tightness, while aluminium could benefit as China finally begins to curb supply.