BFSI, Infrastructure, Manufacturing (particularly electronics, EVs, and semiconductors), and Renewable Energy are well positioned to drive India’s earnings growth in FY27. The banking sector remains a key pillar of the economy, with total outstanding credit reaching Rs. 212.9 lakh crore, retail assets under management hitting Rs.162 lakh crore, and several major banks reporting corporate credit growth of up to 38%, supported by robust lending demand. The Infrastructure sector is expected to benefit from ongoing government expenditures and a recent increase in private sector capital expenditure, which has risen by 67%.
The manufacturing sector continues to gain momentum through PLI schemes, diversification of supply chains, and rising domestic demand, particularly in the electronics and EV sectors. Also, the Renewable Energy and power sector present substantial growth opportunities, with India’s energy investments projected to reach $170 billion, strengthened by rapid advancements in solar, wind, green hydrogen, and battery storage initiatives. Collectively, these sectors are backed by strong domestic demand, supportive policy measures, and long-term structural growth drivers, positioning them to lead India’s earnings growth in FY27.
Financials and IT sector
The next earnings cycle is likely to be driven by a combination of the financial sector and emerging themes, including manufacturing, defence, electronics, and renewable energy. Household consumption remains a major contributor to the economy, accounting for nearly 60% of GDP and benefiting from rising incomes and increasing formalisation. At the same time, India is experiencing a structural transition towards an investment-driven growth model. Government and private capital investments in infrastructure, manufacturing capacity, defence production, and clean energy are creating new earnings opportunities for corporate India.
Earnings growth
Despite significant market re-rating, certain sectors, including BFSI, Manufacturing, and the EV and Energy transition ecosystem, continue to present earnings growth that remains inadequately reflected in current valuations.
In the BFSI sector, several high-quality private banks are currently trading at or below their historical valuation averages, despite having strong fundamentals, which are strengthened by sustained credit growth, an increasing trend in the financialisation of household savings, and increased profitability. The utilities, power, and manufacturing companies are still benefitting from government capex, an increase in electricity demand, and industrial expansion driven by the PLI schemes. However, many of these companies continue to trade at reasonable P/E and P/B multiples in relation to their growth potential.
Similarly, companies involved in electric vehicles, renewable energy, battery storage, and charging infrastructure are witnessing strong earnings momentum driven by India’s energy transition, while their long-term growth opportunity may not yet be fully reflected in current valuations.
Domestic consumption versus Exports and Global demand recovery
We expect FY27 earnings growth to be driven primarily by domestic demand rather than exports or a broad-based recovery in global demand. Ongoing conflicts, tariff-related uncertainties, and geopolitical tensions across regions continue to weigh on global trade and business confidence, making the outlook for export-oriented sectors relatively uncertain. On the other hand, India’s domestic growth remains strong, strengthened by increasing household incomes, urban consumption, government spending on infrastructure, and a recovery in private sector capex. As a result, sectors such as BFSI, capital goods, defence, automobiles, power, renewable energy, and domestic manufacturing are likely to contribute the largest share of earnings growth.
Private Capex
The private capital expenditure cycle is finally gaining significant momentum, although it is still primarily focused on certain sectors rather than being broad based. Increased investments are being directed towards electronics manufacturing, semiconductors, electric vehicles and automotive components, renewable energy, and defence. These investments are supported by government incentives, import substitution efforts, and rising domestic demand.
The power sector is witnessing strong capital formation through projects related to solar, wind, and transmission, while the defence sector is resulting in considerable order inflows for domestic capital goods firms. Approximately 65% of the current capital expenditure is being financed through internal accruals, indicating strong corporate profitability and improved balance sheets.
Risk of earnings
Consumer discretionary, select segments of IT services, and highly valued defence stocks face the greatest risk of earnings disappointment in FY27 despite strong investor optimism. In the consumer sector, there is a possibility that investors are underestimating the effects of ongoing inflation and inconsistent rural demand. With respect to IT services, the anticipated sharp rebound in global technology spending may be overly optimistic if uncertainties related to tariffs, geopolitical tension, and a slowdown in economic growth remain consistent, it will continue affecting corporate budgets. In the defence sector, although the long-term outlook remains positive.
Investment themes
The three themes most likely to define India’s next earnings cycle over the next two to three years are Infrastructure & Capital Expenditure, Domestic Consumption & Financialisation, and Manufacturing & Energy Transition.
Authored by Ajay Garg – Director & CEO at SMC Global Securities Ltd.