The Nifty 50 may rise as a result of Q2FY26 results exceeding forecasts. Strong results in the consumer discretionary and automotive sectors are highlighted by analysts, encouraging hope for future expansion. Will there be obstacles from high valuations or will this trend continue?
Indian corporations' Q2 performance were rather unexpected. As earnings growth is anticipated to further improve in the third and fourth quarters of the current fiscal year, India Inc.'s impressive performance, in contrast to the cautious sentiment ahead of the earnings season, has reinforced the belief that the worst may be behind us and that the Indian stock market is poised for a significant upside.It's possible that the market has begun to devalue growth in earnings. Since September of this year, the Nifty 50 has gained more than 6% on a monthly basis. The index has increased by about 10% so far this year, and assuming there are no unfavorable surprises, it may complete the year with respectable double-digit growth. In addition to profits, the market has performed well due to expectations of a trade agreement between the US and India.
The Q2 display
With net profit increase in double digits, the Q2FY26 results season was the best in almost the previous six quarters. It is anticipated that the upcoming quarter will be even better.
"Q2 numbers show a little improvement, with net profit increase above 10%. Actually, compared to the previous six quarters, this is the best performance. It will be considerably better in Q3. Consumer discretionary sectors, especially automobiles, which did exceptionally well last month and are still doing so this month, will drive earnings growth. VK Vijayakumar, Chief Investment Strategist of Geojit Investments, stated, "We hope this trend continues in FY26 and FY27."
With net profit increase in double digits, the Q2FY26 results season was the best in almost the previous six quarters. It is anticipated that the upcoming quarter will be even better.
"Q2 numbers show a little improvement, with net profit increase above 10%. Actually, compared to the previous six quarters, this is the best performance. It will be considerably better in Q3. Consumer discretionary sectors, especially automobiles, which did exceptionally well last month and are still doing so this month, will drive earnings growth. VK Vijayakumar, Chief Investment Strategist of Geojit Investments, stated, "We hope this trend continues in FY26 and FY27."
Arihant Capital Markets' head of research, Abhishek Jain, emphasized that the Q2FY26 results exceeded the early projections.
"We are beginning to see valuation comfort in select pockets of the market, particularly in financials and NBFCs, where recent corrections have made valuations more reasonable," Jain stated.
Another market that appears more and more appealing is consumption, whose numbers have been weak thus far but are anticipated to significantly improve in the upcoming quarters. The fact that stocks have not drastically corrected even in industries with poor earnings shows underlying strength, according to Jain.
Despite the increased values, Jain believes that the auto industry performs exceptionally well.
"We are beginning to see valuation comfort in select pockets of the market, particularly in financials and NBFCs, where recent corrections have made valuations more reasonable," Jain stated.
Another market that appears more and more appealing is consumption, whose numbers have been weak thus far but are anticipated to significantly improve in the upcoming quarters. The fact that stocks have not drastically corrected even in industries with poor earnings shows underlying strength, according to Jain.
Despite the increased values, Jain believes that the auto industry performs exceptionally well.
Jain noted that a number of automakers have reported impressive results, and we might see more operating leverage following the GST revisions. As a result, the sector may have solid quarters in Q3 and Q4.
Nithin Kamath of Zerodha also thinks that Q2 earnings showed a wide rebound across sectors.
Using data from IndiaDataHub and expressing his opinions on the social networking site X, Kamath claimed that overall revenues have increased by 8.2% year over year, while EBITDA and PAT have increased by 14.1% and 16.0%, respectively. Profit increase surged to 22.5% when financial services were excluded.
Is a significant increase in the Nifty 50 imminent?
Even if earnings have improved, high valuations are still a major worry that could restrict the gains.
Nithin Kamath of Zerodha also thinks that Q2 earnings showed a wide rebound across sectors.
Using data from IndiaDataHub and expressing his opinions on the social networking site X, Kamath claimed that overall revenues have increased by 8.2% year over year, while EBITDA and PAT have increased by 14.1% and 16.0%, respectively. Profit increase surged to 22.5% when financial services were excluded.
Is a significant increase in the Nifty 50 imminent?
Even if earnings have improved, high valuations are still a major worry that could restrict the gains.
"Because valuations are still high, there is no space for a significant rally. This explains why FIIs have been net sellers virtually every day in November. According to Vijayakumar, "other markets like China, Taiwan, and South Korea are much more attractive valuation-wise, even though earnings are improving."
"The long-term P/E average over the past ten years is about 19. We are still over 20 as of right now. Thus, while valuations are generally in line, they are nevertheless a little high. According to Vijayakumar, "some individual stocks have very high P/Es, which pushes up the overall valuation."
"The long-term P/E average over the past ten years is about 19. We are still over 20 as of right now. Thus, while valuations are generally in line, they are nevertheless a little high. According to Vijayakumar, "some individual stocks have very high P/Es, which pushes up the overall valuation."
Emkay Global Financial Services further highlighted that, despite some acceleration in PAT, earnings generally held up during the just finished Q2FY26 results season. However, it was biased in favor of low-PE industries like materials and energy.
"We anticipate a rise in profitability in H2FY26 because to a rebound in spending, and one significant advantage is that the Nifty's asking rate is a moderate 9%. With the Nifty PE of 20.6 trading at +1sd above LTA and a concerning 45% of the consensus universe trading at >+1sd above LTA, valuations are currently stretched, according to Emkay.
"We continue to see modest returns from here and maintain our Nifty objective of 28,000 for September 26E. Our #1 overweight continues to be consumer durables, and sector and stock selection will be crucial.
"We anticipate a rise in profitability in H2FY26 because to a rebound in spending, and one significant advantage is that the Nifty's asking rate is a moderate 9%. With the Nifty PE of 20.6 trading at +1sd above LTA and a concerning 45% of the consensus universe trading at >+1sd above LTA, valuations are currently stretched, according to Emkay.
"We continue to see modest returns from here and maintain our Nifty objective of 28,000 for September 26E. Our #1 overweight continues to be consumer durables, and sector and stock selection will be crucial.
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