Mumbai, September 2025 — Motilal Oswal Financial Services (MOFSL), one of India’s leading brokerages, has struck an optimistic tone in its latest India Strategy Report, arguing that the worst of earnings downgrades is likely over. The report suggests that India’s equity markets, which have underperformed global peers in the past year, may now be positioned for a recovery as earnings stabilize, valuations remain attractive, and policy measures provide strong macroeconomic support.

Easing in Earnings Cuts

Over the last few quarters, Indian corporates have been plagued by earnings downgrades driven by weak demand, inflationary pressures, and global uncertainties. However, MOFSL notes that this trend is now slowing.

• Aggregate PAT estimates for FY26/FY27 were cut by just 2% and 1%, respectively.
• This compares favorably with the sharper cuts of 6%, 3%, and 4% seen in the previous three quarters.
• When BFSI and commodity sectors are excluded, cuts were negligible — only -0.2% for FY26 — and FY27 even saw a 0.4% upgrade.

Interestingly, mid-cap companies were the standout, registering upward revisions of 4% for FY26 and 2% for FY27. While small caps continued to face sharper earnings downgrades, the moderation in cuts across large and mid-caps indicates that the earnings cycle may be bottoming out.

MOFSL now forecasts PAT growth of 13% for its coverage universe and 10% for the Nifty in FY26, suggesting that India Inc. could be on the verge of a stronger growth phase.

Sectors Leading the Recovery

The improvement in earnings visibility is spread across a wide array of industries. According to MOFSL, the following sectors are showing positive momentum:

• Automobiles – Demand recovery in passenger vehicles and two-wheelers.
• Insurance – Expanding penetration and favorable regulations.
• Capital Goods – Increased government infrastructure spending.
• Cement – Rising demand from housing and infrastructure projects.
• Chemicals – Export opportunities and domestic manufacturing push.
• Consumer Staples & Durables – Supported by urban and rural consumption growth.
• Logistics – Growth in e-commerce and supply chain digitization.
• Oil & Gas – Margin improvements from refining and petrochemicals.
• Real Estate – Continued demand in residential housing markets.
• Telecom – Benefiting from tariff hikes and rising data consumption.

By contrast, IT services, PSU banks, metals, and retail remain under pressure, with weak global demand and cyclical headwinds weighing on earnings expectations.

Supportive Policy Environment

The report highlights that policy actions are now strongly supportive of earnings recovery.

• The RBI has cut repo rates by 100 bps to 5.5%, easing borrowing costs.
• The cash reserve ratio (CRR) is set to fall to 3% by November 2025, infusing liquidity into the system.
• Tax reforms such as lower GST rates and reduced personal income tax outgo are expected to put more disposable income in the hands of households, boosting consumption.
• Rural households, in particular, are likely to benefit from higher purchasing power, which should improve demand for consumer goods and staples.

MOFSL argues that the GST 2.0 reforms could trigger a new consumption cycle, where lower prices spur demand, driving operating leverage benefits for corporates.

Valuations Attractive Amid Underperformance

Despite global market volatility, Indian equities remain well-placed on a relative valuation basis.

• The Nifty has fallen 8% year-on-year, underperforming both the MSCI Emerging Markets Index (+16%) and the S&P 500 (+15%).
• Yet, the Nifty trades at 20.6x 12-month forward PE, almost identical to its long-term average of 20.7x.

MOFSL suggests that this combination of reasonable valuations, easing earnings cuts, and supportive policies creates a favorable setup for a market re-rating in 2HFY26.

Top Stock Picks

MOFSL outlined its preferred investment ideas across large and mid-cap stocks:

Large-Caps

• Bharti Airtel
• ICICI Bank
• Larsen & Toubro (L&T)
• Mahindra & Mahindra
• Sun Pharma
• Ultratech Cement
• Titan
• Bharat Electronics (BEL)
• TVS Motor
• Tech Mahindra
• Lodha Developers
• Indian Hotels

Mid-Caps

• Dixon Technologies
• SRF
• Suzlon Energy
• Jindal Stainless
• Coforge
• Supreme Industries
• Page Industries
• Kaynes Technologies
• Radico Khaitan
• UTI AMC
• Niva Bupa Health

The brokerage emphasized that companies with strong balance sheets, high visibility of earnings growth, and sector leadership are likely to deliver the best returns as the cycle improves.

Risks to Outlook

While MOFSL is optimistic, the report acknowledges potential risks that could derail the positive outlook:

• Global geopolitical tensions that may disrupt supply chains and commodity prices.
• Slower-than-expected rural demand recovery, despite policy support.
• Weak global IT spending that could hurt India’s technology exports.
• Persistently high inflation that may force the RBI to delay further easing.

Nonetheless, the brokerage maintains that India’s structural growth story, underpinned by reforms, demographics, and digital adoption, remains intact.

Conclusion

MOFSL’s India Strategy report presents a cautiously optimistic outlook for Indian equities heading into FY26. With earnings downgrades slowing, PAT growth projected at 10–13%, supportive policy tailwinds, and reasonable valuations, the stage is set for Indian markets to regain momentum.

While near-term risks cannot be ignored, MOFSL believes that the worst is behind us in terms of earnings cuts and that investors could benefit from selectively positioning in sectors like autos, capital goods, consumer, and telecom.

If government reforms continue as planned and corporate earnings recovery gains steam, Indian equities may see a re-rating in the second half of FY26, making the coming year one of cautious optimism for investors.

To view the complete Motilal Oswal Financial Services Ltd – India Strategy report

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