Expert view: Expect mid-teens earnings growth for Nifty companies in FY27 and FY28, says Bajaj Life CIO

Edited excerpts:Have elevated oil prices, increased geopolitical risks dented India's long-term growth story?I don’t think India’s long-term growth story is under threat. We have strong structural drivers in our favour: a young population, a large domestic consumption market, rising incomes, urbanisation and continued investment in infrastructure.These are long-term trends that don’t change every time oil prices spike or geopolitical tensions rise.

That said, we cannot ignore the near-term challenges.India still imports a large part of its energy requirements, so a sustained rise in crude oil prices can put pressure on inflation, the current account and growth. We are watchful of these risks.Geopolitically, the world has changed quite significantly over the last few months, with some long-standing global principles being questioned.India needs to adapt to this new reality while protecting its national interests, and the government has been doing a reasonable job of navigating these challenges.For markets, though, geopolitical uncertainty does mean more volatility.

We are seeing that play out now, but it is important not to confuse near-term volatility with a deterioration in India’s long-term fundamentals.How do you see Nifty's negative returns over the last two years? Some top blue-chips such as HDFC Bank, TCS, Reliance, and Asian Paints are down 8%-28% in the last 5 years. What does it teach you as an investor?Over the long run, markets follow earnings, and the last two years have been disappointing on that front.

Nifty 50 companies delivered only mid-single-digit earnings growth in FY25 and FY26, which made it difficult for the market to sustain its earlier valuations.Persistent FPI selling added to the pressure, particularly because foreign investors have a large exposure to these companies.There has also been a perception that some businesses in the index could lose out as AI adoption gathers pace globally.The good news is that we are beginning to see an improvement in earnings.

We expect Nifty 50 companies to deliver mid-teens earnings growth in FY27 and FY28, and the early numbers have been encouraging.After two years of time correction, valuations have also become more reasonable relative to their long-term averages.If concerns around AI-led disruption begin to ease and global flows turn more supportive, that could provide an additional boost to these stocks.For me, the biggest lesson is that even a great company can turn out to be a poor investment if you pay too much for it.

Entry valuations matter enormously.The other lesson is that equity returns can be unpredictable, even over fairly long periods.The Nifty 50 delivered positive calendar-year returns for ten consecutive years through 2025, but 2026 could break that run.Investors need to be prepared for such phases rather than assume that equities will deliver steady returns every year, as fixed-income investments are generally designed to do.We at Bajaj Life follow investment philosophy of Growth At Reasonable Price (GARP), to make sure we focus on earnings growth and also not to overpay for the growth.How do you see the current market valuation across segments?

Where do you see maximum value?We see the best value in large caps right now. They are trading below their historical average valuations, and we believe the market is underestimating how much earnings growth could recover in this segment over the next two to three years.So, you have a combination of reasonable valuations and improving earnings prospects, which makes largecaps more attractive to us at this stage.

Small and midcaps are a different story.Valuations are above their historical averages, and the premium they command over the Nifty 50 is also near multi-year highs. There are certainly pockets where earnings growth is strong, but we believe a lot of that optimism is already priced in.At these valuations, there is very little room for things to go wrong, and the risk of disappointment is much higher.

We would rather be in a segment where valuations are reasonable, and there is scope for earnings to surprise on the upside.How are insurance CIOs positioning billions amid uncertainty?Insurance money is different from mutual fund money in some important ways, and that shapes how we invest.Our liabilities tend to be more predictable and our assets relatively sticky, which gives us a longer investment horizon and allows us to look beyond short-term market volatility.At the same time, we manage a diverse set of products, each with its own return expectations and liability profile.

So, asset allocation is just as important as our view on individual asset classes.We currently prefer equities over fixed income, and within equities, we prefer large caps over small and mid caps.On the fixed-income side, we believe yields could remain elevated in the near term and may move higher depending on how the macro situation evolves. We are therefore keeping duration relatively low and are underweight fixed income in our tactical positioning.At the same time, higher yields create an opportunity to lock in attractive returns for guaranteed products, and we are using that opportunity selectively.We are also gradually broadening our investment universe through allocations to REITs and InvITs.

Ultimately, our approach is not about making a single big bet on where markets go next.It is about balancing risk and return across asset classes, keeping our product obligations in mind and positioning portfolios to deliver sustainable alpha over the long term.Do you think the optimism around AI is weakening? What could it mean for Indian markets in terms of FPI flows?I think the market is beginning to ask some important questions about the AI trade.

There are growing concerns around how the massive investments in AI infrastructure will be financed and, more importantly, what kind of returns they will eventually generate.High leverage of AI companies is a red flag. We are not seeing a full-blown reversal yet, but the mood has certainly changed from a few months ago, when almost anything linked to AI was being rewarded by the market.This matters for India because our markets have underperformed over the last 12–18 months, partly because India was seen as a loser in the AI trade, particularly given the concerns around the IT services sector.In our conversations with global investors, we have also heard repeatedly that India was under-owned because it lacked direct AI investment opportunities.Many global funds have turned significantly underweight on India during this period.If the AI trade cools off, some of these flows could find their way back to India.

It could also lead to a reassessment of Indian IT services companies, many of which are trading at a significant discount to their historical valuations.We should not assume an immediate or automatic reversal in flows, but a shift in global sentiment towards AI could certainly work in India's favour.What are the sectors you are betting on for the next 2–3 years? What makes you positive about these sectors?We are positive on large private banks, given their attractive combination of growth, earnings visibility, and valuations.Credit growth remains healthy, deposit concerns have eased, and asset quality is strong.With the RBI hiking rates, margin pressures should also ease as assets typically reprice faster than liabilities, supporting bank profitability.We also favour autos and consumer durables.

GST rate cuts have supported auto demand, while elevated commodity prices have weighed on margins. In consumer durables, inventory normalisation ahead of the festive season offers growth visibility.We believe near-term margin pressures in both these segments are adequately priced in, while under-penetration across categories provides a long-term growth runway for consumer discretionary businesses.Disclaimer: This article is for educational purposes only and does not constitute investment advice.

The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.