As the Budget 2026-27 approaches, the focus is likely to shift towards structural economic reforms, with limited room for major tax concessions following last year’s significant increase in tax slabs and GST rate cuts, a report showed on Tuesday.
The Indian equity markets have turned largely range-bound after giving up most of their recent gains, amid rising global geopolitical risks and persistent tariff-related uncertainties with the US.
However, domestic demand indicators and macro fundamentals continue to show resilience, supported by policy-led tailwinds, according to PL Capital’s ‘India Strategy Report’.
Nifty has shed most gains made in past couple of months and has been largely flattish.
Global geopolitics is redrawing global power and business equations leading to significant increase in business uncertainty. In addition, India’s sustained tariff row with the US is disturbing the market momentum.
However, the report mentioned that domestic demand outlook and macro indicators still continues to show sustained traction in 3Q and beyond as benefits of cut in interest rates, GST rationalisation, income tax cuts, low inflation have started to show in improved consumer sentiments and demand.
“We expect economic momentum to be sustained as the benefits of strong tailwinds — arising from income tax rate cuts, a cumulative 125 bps cut in the repo rate, normal monsoons, decade-low inflation, and GST rate rationalisation — carry forward into next year,” said Amnish Aggarwal, Co-Head Institutional Equities, PL Capital.
Despite near-term caution, Nifty EPS (earnings per share) is projected to grow at a 14.8 per cent CAGR over FY26–28. The brokerage values Nifty at a 3 per cent discount to its 15-year average P/E, arriving at a 12-month target of 28,814, down from 29,094 earlier.
The brokerage has revised Nifty earnings estimates marginally, with FY26/27/28 EPS adjusted by -2.6 per cent, -2.4 per cent and +1.0 per cent, respectively.
However, the brokerage remains cautious in the near term and expects large caps to continue to outperform, having delivered returns of 16–17 per cent over the past 12 months.
It expects domestically oriented sectors such as banks, NBFCs, autos, select staples, jewellery, defence, select durables and metals to outperform over the near to medium term.
“Consumer staples have seen gradual pickup in demand post inventory rationalisation got over by mid-November. Rural demand remains steady and is growing ahead of urban demand, urban sentiment has shown steady improvement in the past few months with hopes of further pick up in coming months,” said the report.
