Nifty Eyes Record High as Largecaps Rally on Strong Corporate Earnings

Earnings Recovery Puts India’s Benchmark Indexes Back in Record-High Territory

Improving corporate profits and softer energy prices are strengthening the case for a large-cap-led market recovery, though earnings forecasts remain a key test.

Earnings strength has broadened beyond a handful of companies

The Nifty 50 rose 0.84% to 25,255.05 on Wednesday, leaving it 4.1% below its record of 26,328.6, reached on January 2. The Sensex gained 0.95% to 81,879.4 and stood 4.6% below its lifetime high of 85,836.1, touched on September 26, 2024. The proximity to those peaks has put earnings quality and the durability of the rally back in focus, rather than just the latest gains in the indexes.

The results so far point to a substantial improvement in corporate performance. Among 230 companies in Motilal Oswal Financial Services’ coverage universe, representing nearly half of India’s market capitalisation, sales grew 26% year on year, Ebitda rose 24% and net profit increased 33%. The broker described this as the strongest growth in 12 quarters. Large-cap companies recorded 30% profit growth, while 35 Nifty companies that had reported results posted earnings growth of 22%.

Forecasts and valuation support the case, but rely on delivery

Brokers expect Nifty 50 earnings per share of ₹1,247 for FY27 and ₹1,428 for FY28, implying growth of 14.5% between the estimates. Motilal Oswal’s figures put the forward price-to-earnings ratio at 18.6 times, below the current multiple of 20.5 times and the index’s 10-year average of 20.9 times. This comparison helps explain why analysts see room for the market to advance if earnings estimates are met.

But a lower forward multiple is based on expected profits, not guaranteed results. If earnings growth disappoints or forecasts are revised down, the valuation cushion could narrow. Investors may therefore want to assess whether a company’s reported performance supports its projected growth, rather than treating the index-level valuation as a signal that every share is inexpensive.

Large caps are expected to anchor the next leg

The reported Nifty earnings growth was led by Reliance Industries, JSW Steel, ICICI Bank, Coal India and Axis Bank. That mix illustrates how results from large, index-linked companies can influence overall sentiment. Shrikant Chouhan, head of equity research at Kotak Neo, expects large caps to lead the current rally. He sees possible participation from select mid-caps, but says their gains may be more modest than the sharp advance seen over the previous seven to eight months.

The sector outlook remains selective. Ahead of the Union Budget and Q3FY27 earnings, Chouhan identifies private banks and capital markets as attractively valued areas that could perform well. Auto shares have gained recently; a further correction in crude oil prices towards $80 a barrel could, in his view, revive buying interest. Pharma may consolidate after its recent rise, while defence stocks could draw interest ahead of the Budget. These are possibilities, not confirmed outcomes, and depend on the relevant triggers materialising.

What investors should watch as indexes approach their peaks

Easing energy prices are another support cited for the recovery, but the earnings trend is the more direct test of whether the rally can persist. The next set of results will help show whether the improvement extends across businesses and can sustain the FY27 and FY28 profit expectations. The market’s closeness to its highs may also make the response to results important: strong numbers need to translate into credible future earnings, not just one-quarter growth.

Key Highlights

• The Nifty 50 and Sensex are respectively 4.1% and 4.6% below their lifetime highs.
• Companies in the cited coverage universe reported 33% year-on-year net profit growth.
• Large-cap companies posted 30% profit growth; reported Nifty earnings rose 22%.
• Broker estimates put Nifty EPS at ₹1,247 for FY27 and ₹1,428 for FY28.
• Analysts see large caps leading, with sector opportunities dependent on earnings, crude prices and upcoming triggers.

Investor Note: The rally has support from stronger reported earnings and forward-profit expectations, but those estimates still need to be delivered. Investors may wish to focus on company-level results and valuations, while treating sector views and further index gains as possibilities rather than certainties.