Indian Equities Enter a Favourable Phase as Earnings Revival Gains Momentum
Indian equities are approaching a phase where long-term investors may finally see meaningful rewards, according to Sonal Minhas, founder of Prescient Capital. After nearly six quarters of subdued earnings growth and sideways market movement, Minhas believes the building blocks for a healthier market cycle are now falling into place.
“We believe this is a good time for investors to enter Indian equities as we see mid-teen returns for calendar year 2026,” Minhas said, adding that improving earnings visibility and easing macro headwinds are gradually shifting the risk-reward balance in favour of investors.
Earnings Growth Likely to Strengthen Through FY26
Minhas expects corporate earnings to improve steadily over the next few quarters, with Q3 and Q4 FY26 likely to outperform Q2. According to his assessment, overall earnings growth for listed companies in FY26 could land in the 12–15 percent range, marking a clear improvement after a prolonged slowdown.
“If you look at the five-year earnings cycle of the Nifty 500, market rallies have followed clear breakout phases in earnings growth,” he said. The last strong phase was seen during FY22 and again in FY24, while the period from April 2024 to April 2025 remained largely muted.
That muted phase led to both time and price correction in markets. However, signs of revival have emerged since June 2025, with median earnings growth of Nifty 500 companies at 12.2 percent in Q2 FY26, higher than Q1.
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Laggard Sectors Begin to Support Growth Again
A major reason for Minhas’ constructive outlook is the turnaround in sectors that had dragged earnings growth for nearly six consecutive quarters.
These include:
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Information Technology, where demand conditions are stabilising
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Banking and financial services, benefiting from easing regulatory and rate pressures
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Consumption, where early signs of recovery are visible
“These sectors have shown better numbers than Q2 FY26 and carry a strong revival outlook for the rest of the year,” Minhas noted. Despite this improvement, markets have remained range-bound due to global uncertainties such as tariff tensions and geopolitical disruptions, creating what he sees as a favourable entry window.
Autos and Auto Ancillaries Positioned for Outperformance
Among sectoral opportunities, automobiles and auto ancillaries stand out prominently. Minhas said recent GST rate cuts have provided a boost to auto demand, but the larger structural opportunity lies within component manufacturers.
Auto ancillaries are expected to outpace the broader auto industry due to:
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Premiumisation, which raises content per vehicle
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Import substitution, particularly replacing Chinese components
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Rapid expansion of the EV ecosystem
Several ancillary players, he believes, are well placed to benefit from long-term technology shifts rather than short-term cyclical demand.
Chemicals Near the Bottom of a Long Downcycle
Minhas also highlighted improving prospects in the chemicals sector, which has faced sustained pressure over the past four to five years due to aggressive dumping by Chinese manufacturers.
“Many chemical segments are showing signs of a cyclical turnaround,” he said, citing bottoming prices and early demand recovery. Agrochemical intermediates, dyes and pigments, and performance chemicals could benefit as global pricing stabilises and supply discipline improves.
Banking and NBFCs Set to Benefit From Benign Rate Environment
The banking and NBFC space, which struggled with deposit shortages and regulatory tightening, appears to be emerging from its most challenging phase.
According to Minhas, several supportive factors are now in play:
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A 75 basis point repo rate cut
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Inflation expected to remain benign at 2–2.5 percent
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Normalisation of credit growth after RBI intervention
“We believe high-quality banks and NBFCs with exposure to MSME, personal and corporate credit should grow well from hereon,” he said, adding that return ratios are likely to improve as credit costs stabilise.
EMS Stocks Remain Valuation-Stretched Despite Corrections
Despite sharp price corrections, Minhas remains cautious on the electronics manufacturing services (EMS) space. While many stocks are down 30–50 percent from their 52-week highs, he believes valuations are still demanding.
“Markets earlier valued these companies purely on topline growth, ignoring capital efficiency,” he said, noting that many EMS firms generate return on equity below 15 percent. Expansion into lower-margin segments to chase growth has further diluted return profiles, making selective caution necessary.
Power Equipment, Logistics and Microfinance Offer Emerging Opportunities
In addition to core sectors, Minhas identified three themes that investors should consider:
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Power equipment and transmission, benefiting from multi-year capex and data centre expansion
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Logistics, recovering from a cyclical slowdown amid consolidation and better pricing discipline
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Microfinance, where asset quality stress appears to have peaked
Microfinance stocks corrected sharply after RBI tightened norms in 2024. “The best-in-class lenders have cleaned up lending processes and should see healthier growth in H2 FY26,” Minhas said.
Discretionary Consumption Shows Early Signs of Revival
Discretionary consumption has begun to show green shoots in segments such as paints and wellness products. However, disruptions from labour stoppages and GST rollout changes dampened demand in H1 FY26.
Minhas expects benefits from tax relief, lower GST rates and easing lending costs to start reflecting in consumption trends by Q4 FY26.
FII Outflows Linked to Valuations and Global AI Narrative
On foreign flows, Minhas said continued FII selling—nearly $18.5 billion in 2025—was driven by India’s premium valuations and the absence of an AI-led earnings narrative.
“AI-driven growth boosted markets in the US and parts of Asia, while India saw flat earnings for over a year,” he said.
Bottom Line: Earnings Cycle Turning in Favour of Investors
For investors willing to look beyond near-term noise, Minhas believes the earnings cycle is clearly turning. With valuations more reasonable and multiple sectoral tailwinds emerging, Indian equities appear well positioned to deliver mid-teen returns in 2026, provided portfolios remain selective and disciplined.
