Indian equities may finally be turning a corner after months of downward revisions, according to Motilal Oswal Financial Services, which says the worst of earnings cuts is likely behind. The brokerage noted that “a better earnings cycle, decent valuations, and a base of underperformance set the stage for potential up-move in market and valuation expansion for Indian markets.”

For the quarter ended June (1QFY26), aggregate profit-after-tax cuts for Motilal Oswal’s coverage universe stood at just 2% for FY26 and 1% for FY27, compared with 6%, 3%, and 4% cuts in prior quarters.

Excluding banks and commodities, the downgrade was negligible at –0.2% for FY26, while FY27 saw an upward revision of 0.4%. Mid-caps even posted upgrades of 4% and 2% for FY26 and FY27, respectively, though small caps continued to bear steep 8% cuts.

“Already, FY26 PAT/EPS estimates for our universe/Nifty have been cut by ~13%/~16% since 1QFY25, implying that a material part of the downward revision is behind,” the brokerage said.

Policy support in focus

Motilal Oswal attributed optimism to a supportive policy backdrop. The RBI has lowered the repo rate by 100 basis points to 5.5% and is set to reduce the cash reserve ratio to 3% in stages. “Policymakers in a ‘whatever-it-takes’ mode” have also pushed liquidity into surplus, cut GST rates, and reduced personal income taxes to lift disposable incomes.

“GST2.0 has potential to kickstart a consumption cycle and likely be an earnings kicker for India Inc,” the report noted, adding that lower prices could spur demand and margin expansion through operating leverage

Sector divergence persists

The easing trend has been uneven. Automobiles, insurance, capital goods, cement, and consumer staples saw stabilization, while technology, PSU banks, metals, and retail continued to record sharper cuts.Private banks also faced pressure on FY26 estimates, though Motilal Oswal expects credit growth to revive in the second half.

Outlook and risks

For FY26, the brokerage projects profit growth of 13% for its universe and 10% for the Nifty, with FY25–27 CAGR expected at 15% and 13% respectively.

It warned, however, that “key risks are a lower-than-expected benefit of government actions on aggregate demand or any further high-impact geopolitical risk event.”

Top stock picks include Bharti Airtel, ICICI Bank, L&T, M&M, Sun Pharma, Ultratech, Titan, Tech Mahindra, BEL, TVS Motors, and Indian Hotels on the large-cap side, and Dixon, SRF, Suzlon, Coforge, Page Industries, and Radico Khaitan among mid-caps.

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