Bajaj Life CIO expects double-digit Indian equity returns as earnings recover
Bajaj Life's chief investment officer predicts Indian stocks will deliver double-digit returns over the medium term, driven by recovering corporate earnings and retreating crude oil prices.
Srinivas Rao Ravuri, chief investment officer at Bajaj Life, expects the Indian stock market to generate healthy double-digit returns over the medium term. He attributes this outlook to a projected recovery in corporate earnings and a stabilization of macroeconomic risks.
Consensus estimates indicate Nifty 50 earnings could expand at a 15% compound annual growth rate over the next two years, supported by improving domestic demand and lower interest rates. Ravuri notes that the index is currently trading near its long-term average valuation multiples, offering a more attractive entry point following a two-year consolidation phase where earnings growth moderated to single digits.
The macroeconomic picture has also improved as crude oil prices retreated following the recent Middle East conflict. Initially, elevated oil prices threatened a 7% to 8% downside risk to Nifty 50 earnings for fiscal 2027, but that impact has now moderated to 2% or 3%.
Cheaper crude-linked imports are expected to support corporate margins and ease inflationary pressures across the economy. Consequently, Ravuri does not anticipate an aggressive monetary tightening cycle from the Reserve Bank of India, suggesting any rate hikes would be limited to 25 or 50 basis points if inflation re-emerges.
Foreign portfolio investors have been net sellers recently, largely due to a global preference for artificial intelligence themes rather than deteriorating Indian fundamentals. As global capital allocation broadens beyond a narrow set of technology beneficiaries, Ravuri expects this underweight positioning to reverse. This capital reallocation would primarily benefit highly liquid large-cap stocks, prompting the firm to maintain a balanced approach rather than shifting tactically toward mid- and small-caps.
Within equities, Bajaj Life favors private sector banks and pharmaceuticals for their improving earnings visibility. Private lenders offer attractive risk-reward profiles with benign asset quality and margins near a cyclical bottom, while drugmakers benefit from robust product pipelines and reasonable valuations.
The investment firm has also turned incrementally positive on information technology, expecting large-cap tech companies to post double-digit earnings growth supported by a weaker rupee. Conversely, while power and capital goods possess strong order books, their demanding valuations make them vulnerable if market leadership shifts away from current themes.
