BofA Securities has already slashed its Nifty earnings growth forecast to 8.5% for FY27 from 14% pre-conflict levels, now sitting significantly below the 15% consensus estimate. “Our base case assumes crude at $92.5/bbl (US$100/bbl for rest of CY26), FY27 GDP growth at 6.5% vs 7.4% earlier,” said BofA research analyst Amish Shah, warning that a prolonged conflict could see earnings growth collapse to zero with GDP sliding toward 3%.
If crude oil prices remain elevated through the June quarter, analysts expect low single-digit downgrades, especially in oil-sensitive sectors such as paints, aviation, chemicals, logistics, and select consumer businesses.
Nifty valuations looking cheaper?
“On a forward basis, valuations have moved closer to their historical averages (18-19x) when assessed against FY27 earnings estimates,” noted Uttam K Srima of Axis Securities. “However, the risk from higher crude prices remains a key overhang. If elevated oil prices persist longer than anticipated, the impact on input costs, margins, and overall corporate profitability could be meaningful, thereby increasing the likelihood of earnings downgrades across sectors.”
The ongoing Q4 management commentary will prove pivotal in reassessing earnings expectations, particularly as crude prices that recently touched $100-110 per barrel have only corrected to $93-96 following the two-week ceasefire announcement. The oil shock challenges earlier assumptions of stable input costs and margin normalization that underpinned mid-teen growth expectations for the Nifty 50.
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“If crude remains elevated and gas availability restrictions continue, another round of earnings downgrade will become inevitable,” warned Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments. “Earnings downgrades will be in import intensive and crude related segments.”Siddharth Vora, Head of Quant Investment Strategies at PL Asset Management, cautioned that the apparent valuation comfort could be deceptive. “While valuations may appear attractive, they risk becoming expensive if earnings are impacted by higher input, energy, logistics, and financing costs,” he said, pointing to elevated uncertainty, weak global liquidity, and limited earnings visibility in the new macro regime.
Elara Securities notes the Nifty trades at 17.5x one-year forward P/E, approximately 6% below its 10-year rolling average of 18.6x—historically a durable floor outside of Covid disruptions. However, the firm warns that historical evidence suggests 200-300 basis points of margin contraction in a worst-case escalation scenario. Earnings estimates have already been trimmed, with FY27E EPS cut by Rs 26 since January and FY28 by Rs 43.
More downgrades for India Inc ahead?
BofA has taken the most aggressive stance, downgrading rate-sensitive sectors including mid-sized private banks, NBFCs, real estate and passenger vehicles to underweight from overweight previously.
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Still, some see opportunity amid the turbulence. “The last few months have been a macro stress test,” said Vinay Paharia, CIO of PGIM India Mutual Fund. “However, we believe, many of these being transitory and would resolve themselves with passage of time.” He notes that large caps and small caps now trade very close to long-term valuation averages, making risk-reward “much more balanced than before,” though mid-caps remain at moderately rich levels.
Axis Securities expects near-term market behavior to remain range-bound with intermittent volatility as rising input costs, currency pressures and potential earnings downgrades keep sentiment cautious. “Market breadth is likely to stay narrow, with leadership concentrated in select sectors and high-quality names within the Nifty500,” Srima said.
The market appears in a recalibration phase where a sustained directional uptrend will require clearer evidence of earnings acceleration and macro stability, conditions that may only emerge in the latter part of FY27 as external headwinds moderate.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)