Bajaj Finserv research shows Indian equities gain support from earnings, domestic demand

Indian equity markets have remained broadly range-bound for nearly 18 months, even as global markets saw a strong bull run. Over the past six months, domestic conditions have strengthened, providing a more supportive environment for equities, according to research from Bajaj Finserv Asset Management Limited (BFAML).

Corporate earnings have shown robust momentum, with Nifty 500 profits rising 16% year-on-year in Q3 FY26, marking an eight-quarter high.

Sorbh Gupta, Head of Equity at BFAML, said, “The latest reporting season reflects a broad-based recovery in profitability, which provides a more supportive foundation for equity market

s going forward.”

Credit growth has returned to double digits, signaling improved demand and liquidity, while consumption indicators, boosted by recent GST cuts, have started to recover.

The Reserve Bank of India’s cumulative 125 basis points rate cuts and liquidity infusion have further lowered borrowing costs for companies and consumers.

However, new uncertainties have emerged in 2026. Rapid adoption of artificial intelligence globally has raised concerns over short-term impacts on Indian IT services demand and job creation, contributing to recent underperformance in the sector.

Gupta added, “Indian IT companies have historically adapted to technological shifts, and the sector is likely to reposition itself as the new technology cycle evolves.”

Geopolitical tensions in the West Asia have also intensified crude oil risks for India, which imports around 85% of its crude, with 40–50% passing through the Strait of Hormuz. A prolonged conflict could pressure inflation, the rupee, and margins in sectors such as aviation, chemicals, and oil marketing, while potentially triggering foreign portfolio outflows. Analysts note that India’s foreign exchange reserves and strategic petroleum buffers provide a key cushion.

In the fixed income market, bond yields rose sharply following the Union Budget and RBI Monetary Policy Committee meeting, reflecting concerns over geopolitical risks and sustained FPI outflows. The rupee slipped to a record low but briefly recovered after the India–US trade deal announcement.

Siddharth Chaudhary, Head-Fixed Income at BFAML, said, “Underlying inflation pressures remain contained, strengthening the case for a stable policy environment as the RBI focuses on the transmission of earlier rate cuts.”

The US–Iran conflict has since reignited volatility, pushing crude prices higher and steepening the long end of the yield curve. Chaudhary added that the 3–7-year segment of the bond market currently offers an attractive balance of yield and stability, while the long end remains sensitive to crude price and currency movements.