NIFTY50 EPS growth seen at 11%–13% in FY26–FY27: Abhishek Mishra, SKG Investment & Advisory

After the broad rerating of the previous cycle, markets are no longer rewarding liquidity alone. Instead, earnings delivery, balance sheet strength, and cash flow visibility are driving outcomes, Mishra added.

The expert discusses expectations for the Union Budget 2026-27 and sector outlooks: metals, financials, and telecom.

Capex continuity, but with better transmission

Markets expect public capex growth of nearly 10-15% in FY27, but execution matters more. FY26 BE capex was ₹11.21 lakh crore, while FY25 actuals were around ₹10.18 lakh crore vs BE of ₹11.11 lakh crore.

Faster project awards, payment discipline, and state-level rollout will determine whether Capex converts into multi-year earnings for EPC and capital goods midcaps.

Defence, Manufacturing & AI: Execution Over Narrative

Defence production crossed ₹1.27 lakh crore in FY24, yet working capital stress persists for suppliers. Policies that improve order visibility and receivable cycles will matter more than new themes.

AI adoption in manufacturing and defence technology can lift productivity by 15-20%, improving margins and asset utilisation across supply chains.

MSMEs: Structural Cash Flow Repair

MSMEs contribute around 30% of GDP and nearly 45% of exports but remain vulnerable to receivable delays. Credit guarantee cover for micro and small enterprises was raised to ₹10 crore, enabling ₹1.5 lakh crore incremental credit. Faster cash cycles reduce earnings downgrade risk for listed small caps.

Reduce Friction for Startups & Innovation

Rationalising ESOP taxation and compliance lowers hidden costs in growth businesses, improving talent retention and scalability. This strengthens the pipeline from small- to mid-cap leadership.

Broaden Private Capex Participation

Private capex remains uneven and concentrated. Broader participation improves vendor demand stability, pricing power, and utilisation-led margin expansion, key for sustainable small- and mid-cap earnings.

The current market setup increasingly resembles a post-consolidation phase marked by lower beta but higher dispersion, where stock selection matters more than index direction.

After the broad rerating of the previous cycle, markets are no longer rewarding liquidity alone. Instead, earnings delivery, balance sheet strength, and cash flow visibility are driving outcomes.

In such environments, headline indices often remain range-bound, while underlying stocks exhibit sharp divergence between winners and losers.

Domestic flows have emerged as the primary stabilising force during global risk-off phases. Monthly SIP inflows have remained resilient above ₹25,000 crore through late 2025, cushioning volatility and reducing the probability of disorderly drawdowns.

However, these flows are increasingly selective, favouring companies with earnings visibility that are mostly big-name large caps and avoiding indiscriminate rallies across sectors or market caps. This explains why broader participation has narrowed even as overall market levels have held up.

From an earnings perspective, expectations are normalising. Nifty 50 EPS growth is expected at nearly 11-13% over FY26-FY27, materially lower than the post-pandemic rebound years but still healthy in absolute terms.

Importantly, profit concentration remains elevated, with financials contributing roughly 35-40% of index earnings.

This concentration amplifies dispersion: sectors or companies that miss expectations face sharper deratings, while consistent compounders continue to attract capital even without multiple expansion.

This market structure rewards execution over narratives. Returns are less likely to come from broad valuation rerating and more from earnings upgrades, operating leverage, and capital efficiency improvements at the company level.

For investors, this implies a shift from index-led optimism to forensic stock selection, where dispersion is not a risk to be avoided but a source of alpha to be captured.

Manufacturing & Capex Upswing (PLI & China+ 1)

India’s manufacturing cycle continues to strengthen as the Production Linked Incentive (PLI) schemes across electronics, autos & EVs, pharmaceuticals, chemicals, and speciality manufacturing convert policy intent into on-ground capacity creation.

As of FY25, PLI schemes across 14 sectors have attracted committed investments of over ₹1.2 trillion and generated incremental production exceeding ₹9 trillion, with electronics accounting for the largest share.

India’s electronics exports have risen from ~US$6 bn in FY15 to over US$29 bn in FY24, lifting India’s share in global electronics exports from less than 1% to approximately 3%.

On the domestic front, capital goods companies continue to report healthy order inflows, supported by railways, power, defence, renewables, and industrial capex, with industry order books at 2.5-3.0x trailing revenues, indicating multi-year revenue visibility.

Public sector capital expenditure has been sustained at ~3.2-3.4% of GDP in recent Union Budgets, while private capex intentions have improved as capacity utilisation remains above 74%. This combination positions industrials, EPC, ports, logistics, and manufacturing ancillaries as key beneficiaries through CY2026.

Financials: Credit Growth with Balance Sheet Strength

India’s banking system continues to deliver steady credit growth, with non-food system credit expanding at ~13-15% YoY through FY24-FY25, driven by retail, MSME, and services-linked demand.

Asset quality has improved materially, with gross NPAs for scheduled commercial banks declining to around 3.0%, the lowest level in over a decade, supported by recoveries, write-offs, and restrained underwriting during the previous cycle.

Improving liability franchises, particularly growth in low-cost CASA deposits and term deposits, alongside rapid digital sourcing, are driving operating leverage.

Large private banks continue to deliver RoEs in the 15-18% range, while PSU banks have structurally improved profitability with RoAs turning positive after several years.

NBFCs focused on consumption finance, MSME lending, and infrastructure funding remain well-positioned as liquidity transmission improves and funding spreads stabilise during the easing phase of the monetary cycle.

Energy Transition & Power Ecosystem, Specifically Nuclear

India achieved its target of 50% installed power capacity from non-fossil sources in 2025, well ahead of its 2030 commitment, driven by rapid solar and wind additions.

Electricity demand continues to grow at ~6-7% annually, reflecting industrial expansion, urbanisation, and rising per capita consumption.

This dual dynamic creates parallel opportunities across renewables (solar, wind, storage, and grid equipment) and conventional power segments such as coal logistics, transmission infrastructure, and balancing capacity.

The resulting capex cycle across generation, transmission, and power equipment offers multi-year earnings visibility, with power sector capex projected at over ₹9 trillion between FY25 and FY30.

Importantly, the government’s recent policy push to allow greater private sector participation in the nuclear power ecosystem, covering reactor manufacturing, fuel cycle services, and project execution, is expected to accelerate capacity addition beyond the current ~7.5 GW installed base and crowd in long-duration private capital, creating a structural growth opportunity for capital goods, EPC, and specialised engineering companies.

India’s telecom sector is entering a more constructive phase, shifting from a pure volume-led growth model to one increasingly driven by monetisation and cash flow improvement.

According to TRAI’s Quarterly Performance Indicators (April-June 2025), total telecom subscribers stood at 1.22 billion, with wireless subscribers at 1.17 billion, underscoring the sector’s massive scale and penetration runway, especially outside urban markets.

Importantly, internet subscribers crossed 1.0 billion, while rural internet penetration remains meaningfully lower than urban levels, highlighting a multi-year growth opportunity as coverage and affordability improve.

A key positive is the continued rise in data usage and ARPU. Average wireless data consumption reached 24.0 GB per user per month, while total quarterly data usage exceeded 65,000 PB, reflecting structurally rising digital dependence.

Monetisation is beginning to catch up with usage growth: industry ARPU increased to ₹186.6 per month, registering ~18.5% year-on-year growth, an important signal that tariff repair and premiumisation are gaining traction.

As networks are largely built out, incremental ARPU growth has the potential to translate into disproportionately higher EBITDA and free cash flows.

Another emerging opportunity is 5G Fixed Wireless Access (FWA), with TRAI reporting 7.85 million FWA subscribers by June 2025. FWA provides a scalable broadband solution in areas where fibre economics are challenging, enabling bundling of mobility and home broadband and improving customer lifetime value.

However, risks remain.

Sustaining pricing discipline is critical, as any return to aggressive competition could quickly erode returns. High capex requirements, regulatory dues (notably AGR-related stress for weaker operators), and the need for continuous network densification to match rising data demand pose ongoing challenges.

The Indian telecom sector offers a favourable medium-term outlook, anchored by rising data consumption, improving ARPU, and broadband expansion, but investor outcomes will hinge on balance sheet strength, execution quality, and tariff rationality.

The sustainability of the current rally in metal prices hinges on whether demand strength is structural or merely cyclical. On balance, evidence suggests the cycle is being supported more by durable demand drivers than by short-term supply shocks, though volatility is inevitable.

On the demand side, global capex and infrastructure cycles remain intact. Energy transition investments, grid expansion, defence manufacturing, and the reshoring of supply chains continue to support metals such as copper, aluminium, steel, and specialty alloys.

According to the IEA, total mineral demand linked to clean energy technologies is expected to grow at 2-4x the pace of overall industrial demand over this decade, providing a medium-term demand floor.

Supply dynamics are equally important. Geopolitical fragmentation, trade restrictions, and environmental constraints have structurally raised marginal production costs and limited fresh capacity additions.

This is particularly visible in copper and aluminium, where long gestation periods and permitting challenges restrict rapid supply responses. These factors help explain why price corrections have been shallow despite bouts of global risk aversion.

However, equity returns are unlikely to mirror commodity price moves one-for-one. Markets are increasingly cash flow and balance sheet sensitive, meaning companies with high operating leverage but weak capital discipline may underperform even in a supportive price environment. Input cost inflation, royalty regimes, and export policies also add dispersion at the stock level.

From a fund manager’s perspective, this argues for selectivity rather than blanket exposure. The rally appears sustainable but choppy, best expressed through low-cost producers, companies with strong free cash flow generation, conservative leverage, and downstream or contracted demand visibility.

In short, metals remain a structural theme, but alpha will come from execution, not just prices.

India’s oil & gas sector sits at the intersection of structural energy demand, import dependence, geopolitical volatility, and the transition to cleaner power, making it one of the most strategically important and analytically nuanced investment themes in India today.

From a macroeconomic and risk perspective, India remains heavily reliant on energy imports. During 2024-25, India imported nearly 300 million metric tonnes of crude oil and petroleum products while exporting about 65 million tonnes, and the oil & gas segment accounted for nearly 28% of total trade by volume.

India meets roughly 88% of its crude oil and 51% of its gas needs through imports, reinforcing the vulnerability of trade balances and freight logistics to global disruptions.

Freight costs themselves are material: Indian oil marketing companies have paid around $5/barrel from the US and $1.2/barrel from the Middle East over recent years, showing how sourcing decisions feed directly into the cost of goods sold.

That said, demand trends remain robust.

India’s crude consumption stands at ~5.6 million barrels/day and is projected to approach 6 million barrels/day soon as industrial activity and mobility grow, underscoring structural fuel demand.

In power markets, the transition story is equally compelling: India has hit the milestone where non-fossil sources now meet around 50% of installed capacity, with renewable and nuclear powering growing shares in the grid.

For investors, this underscores a dual-track opportunity set:

• Conventional energy and logistics: Integrated refiners, pipelines, LNG terminals, and marketing networks with scale and margin protection can outperform through volatile crude price regimes and freight cost shifts.

• Energy transition capex: Grid transmission, renewable integration enablers, and gas infrastructure that help balance an increasingly variable generation mix.

The best way to express this theme is through companies with strong balance sheets, diversified cash flows, integrated models, and clear execution on both conventional and transition capex fronts.

Rather than broad sector ‘beta’, it’s resilience, scale, and strategic positioning that will deliver durable returns in an environment shaped by persistent geopolitical risk and accelerating energy demand.