How can we believe Nifty will make new highs in FY-27?

 

Do you think Nifty will touch new highs in FY-27? How could that be possible when the global situation is tough for India? Do you think large caps will grow, or midcaps and small caps? Well, the numbers expectation is tough to think about and believe, but we have tried our best to figure out the rationale of the market to make new highs despite all the odds.

The last 7 months have been a big learning experience for the market and for the investors.  There was a time when India was being flooded with pessimism and was often compared with the Korean’s and Taiwanese stock markets and FII inflows. Investors were focusing on global investment products, and there was an euphoria for GIFT City products.  Indians were treating Indian markets as much inferior and foreign markets as much superior. Investors were spending here but were betting on AI stocks and overseas markets where they had limited knowledge. The craziness of investors discounting Indian markets' long-term growth and taking bets for short-term gains in foreign markets turned sour very soon. It's important to know what is turning on and how the Indian markets are going from slow earnings to stable earnings despite global factors.

The INR was one of the factors that kept Indian markets under pressure, but the FCNR turned out to be a big success, and on the same note, we Indians doubted why FII’s or NRIs would invest in FCNR and not in Korea, Taiwan or the S&P 500 and AI stocks. But all these assumptions turned out to be negative for the investors, and now Indian markets are back with strong earnings numbers. In my last article we wrote very clearly that FCNR is a big weapon when the returns are being calculated. Thats why Indian governmnet is now planning to close it one month before the FCNR.https://www.ianalysis.co.in/2026/06/fcnr-generates-21-to-even-27-annually.html

In the last 1 year, from 15^th August 2025 to 15^th August 2026, the index has delivered a negative return of 2% since last year to Independence Day 2026, due to geopolitical uncertainties, foreign capital outflow, and earnings growth-valuation mismatch

Nifty Midcap 150: Q1 FY27 EPS grew about 34% YoY (with over 80% of the index having reported).

Nifty Smallcap 250 / Smallcap 100: Q1 FY27 EPS grew roughly 40% YoY for the Smallcap 250. Small-cap earnings were almost flat in FY25–FY26, setting up a high percentage rebound in FY27.

A record 62.7% of companies that reported losses in Q4 FY26 turned profitable in Q1 FY27, the highest rate in six quarters. The 271 companies generated a combined profit of ₹5,973 crore, compared with a loss of ₹5,505 crore in the previous quarter.

The improvement was supported by lower expenses and higher other income, signalling a broadening recovery in corporate earnings and a positive catalyst for markets.

 What factors will drive markets to new highs?

 The PAT growth of Q1 FY-27 matches the PAT of Q3 FY-24.  Q1 FY27 results already reflect this: midcap and smallcap earnings grew ~23–34% and ~31–40% YoY respectively, well ahead of large caps, indicating operating leverage and mix benefits. This is the place where the turnaround is being noticed for the Indian markets. Analysts remain constructive on mid- and small-cap earnings leadership continuing, supported by domestic demand, selective sector strength (financials, certain industrials/discretionary), and a broadening recovery—though delivery on high expectations is key given valuations

On the 80^th Independence Day, the Indian economy and market are both stable, and the earnings outlook has recovered significantly. The Indian markets will make new highs during or after Diwali but before March 2027.  During this phase, we will complete the 2-year down phase of the market due to the low base of previous years.

We had a healthy monsoon; hence, food inflation will be on the lower side. Industrial inflation has also been controlled and is coming down from the all-time highs of May and June numbers. For example, Fuel & Power: 20.05% YoY (down sharply from 27.41% in June, but still very high).  This adds significant numbers to the PAT.

 After a couple of years of uneven rural and mass-market demand, indicators like two-wheeler sales, FMCG volume growth, and discretionary spending have started to firm up in FY26–FY27.

Permanent resolution around the Strait of Hormuz chokepoint leading Brent crude to stabilise within the $70 --$80/bbl band, directly reducing headline inflation and easing input cost pressures.

FIIs exhibited a clear preference for sectors offering either defensive earnings visibility or attractive valuations. Consumer services, healthcare and consumer durables attracted substantial inflows, reflecting confidence in India’s consumption-driven growth story.

Many companies have already passed through earlier cost increases via price hikes; as raw-material inflation moderates or stabilises, gross margins can expand even if top-line growth is moderate.

Many firms are now operating at higher utilisation, so incremental revenue flows more strongly to profits.

Recent earnings trends

• Q1 FY27:
• Nifty 50 EPS grew roughly 10–11% YoY.
• Midcap 150 EPS grew about 34% YoY.
• Smallcap 250 EPS grew around 40% YoY.

Higher sustainable growth rates and improved ROE profiles justify a higher equilibrium P/E. The above numbers do not account for the broader index rally; hence, even if the numbers might look high, it's not in a risky zone, which leaves a margin of safety and growth.

Conclusion:

The beginning of the festive season was followed by growth in consumption, which will boost operating profits. Spending levels have gone up, and there is no shortage of the same. The broader participation of stocks is still awaited; hence, the market has a high probability of making new highs.   The market is now slowly getting adopted and is neglecting the U.S -Iran war and focusing more on earnings and strategies of growth within the economy. If earnings grow at ~12–15% CAGR over the next few years, the market can absorb current valuations without needing aggressive multiple expansion. Follow your asset allocation and risk-taking ability before investing. It's time to revisit financial planning goals and realign your allocation towards equities.

Most importantly, review your risk taking ablity and if their si any adverse expectation by everyone and hard to believe the market will go up and make new highs, you should consider that while investing.