The performance of Indian markets has been much weaker than other emerging markets in the last one year. Valuations are still high. Amish Shah, India Research Head, Bank of America (BofA) Global Research has said these things. However, he said earnings downgrades now appear to be in decline. FY27 may see improvement in earnings growth on a relatively low base. While talking to Moneycontrol, he told many things about the market and investment.
Valuation of Indian markets still high
He said that the valuation of Indian markets remains high. Indian markets have given very low returns in the last one year. The truth is that growth has also been very low during this period. Nifty’s earnings growth in FY2025 was only 5.5 percent. We expect 7 percent earnings growth in FY26. Therefore, the market has given returns according to an average growth of 6 percent. This also means that the valuations of Nifty have not decreased.
Smallcap-midcap stocks remain expensive even after the fall
Shah said that after 4-6 percent decline this year, there has been a decline in the valuations of smallcap and midcap. But, these are still expensive. For this reason, BofA Research believes that the performance we have seen from small and midcap stocks in FY25 may continue in FY27 as well. The long term average valuation of Nifty has been 16 times. However, I believe that it is not right to consider 16 times as the valuation of Nifty, because the companies included in Nifty keep changing.
Earnings downgrade appears to be in short supply
Regarding reduction in earnings estimates, he said that it will come down because growth is likely to increase. When this year started, we had estimated Nifty earnings growth of 7 per cent for FY26, while the consensus was in favor of 22 per cent earnings growth. We still maintain our estimate of 7 percent. But, the general opinion has come down from 22 percent to 8 percent.
Improvement may be seen in earnings growth
He said that in some cases, growth is going to be weak in FY27 also. But it may be slightly better than FY26. The earnings growth of some Nifty companies has been 5-6 percent so far in FY26. Further it can increase to 8-9 percent, which is not very much. But, there is improvement compared to last year. Similarly, the earnings growth of largecap IT firms has been 2-3 percent. This can increase to 5-8 percent. This is not much, but more than last year.