Budget boost for earnings! 3 reasons why double-digit Nifty EPS growth is possible in FY26

Leading brokerage JM Financial pegged Nifty EPS growth (earnings per share), which is the average of India’s top 50 stocks, at 18.3% for FY26. This comes even as the EPS for the current fiscal is revised down to 3.8%.

Corporate earnings have been in a slowdown in the last few quarters, where the top Indian companies reported their weakest quarterly performance in over four years for July-September quarter.

The Nifty EPS was tepid with only 5.5% and 4.2% YoY growth in Q1 and Q2, respectively. Further, against the brokerage’s expectations of 5.8% YoY growth in the third quarter, so far the 26 Nifty companies that have reported numbers delivered only 4.4% YoY growth.

JM Financial gave three reasons as to why the EPS would edge significantly higher in next fiscal. First is the rebate in personal taxes. “Nil tax up to Rs 12 lakh and rejigging of tax slabs should support consumption (both discretionary and non-discretionary), especially in the urban economy,” it said.

The brokerage also said that, unlike CY24, the rural economy should do better in CY25 on the back of good monsoons and reservoir levels improving above long period averages. Further, the government capex growth should be much better at 10% in FY26 versus 7% in FY25.Following the correction, where the Nifty, Nifty midcap and smallcap indices dropped 12%, 14% and 16%, respectively, JM Financial said valuations are relatively less expensive now.”Interestingly, the bond yield premium above earnings yield suggests the market is cheaper than what the Nifty50 P/E multiples suggest. Midcap and small cap valuations still seem expensive even though earnings growth might be stronger in these names vis-à-vis large caps,” it said.

The brokerage also said a change in guard at the RBI with a new governor has sparked hopes of the start of the rate cut cycle from February 25. Moreover, we expect inflation to trend lower in the near term to 4.5-4.6% levels.

Analysts believe the RBI’s recent measures around bond purchases, repo operations and currency swaps were intended to address the liquidity situation, which sets the stage for the start of rate cut cycle in the meeting that starts later this week.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)