Q3 Earnings Must Deliver Double-Digit Growth To Justify Indian Stock Valuations: JPMorgan

Indian equities enter the December-quarter results season with Nifty earnings growth of about 7% annually and 9% for JPMorgan’s coverage universe, said brokerage JPMorgan in its latest note, warning that double-digit earnings growth is now essential to sustain India’s elevated market valuations.

Materials, Energy and Industrials are expected to lead profit growth, while Financials, Pharma and Gas utilities remain drags. IT services continues to be weak, though deal-to-revenue conversion is improving, offering some visibility for later quarters. The December quarter is also the first full period after GST cuts, making management commentary on demand and pricing especially important.

JPM believes the worst of earnings downgrades is behind, with MSCI India earnings forecast to grow 13% in CY26 and 14% in CY27. It keeps its Nifty targets unchanged at 30,000 (base), 33,000 (bull) and 24,000 (bear) and prefers domestic-facing sectors over exporters, given the uncertain global backdrop.

Margins are expected to recover modestly, with Nifty EBITDA margin rising 88 basis points quarter-on-quarter and JPM-covered companies by 36 basis points, helped by easing input costs and operating leverage. Nominal GDP growth is projected to improve to 9–9.5%, supporting earnings momentum.

JPM is overweight Financials, Materials, Consumer Discretionary, Consumer Staples, Hospitals, Real Estate, Defence and Power, while remaining underweight IT and Pharma.

Valuation comfort, JPM says, hinges on whether earnings can re-accelerate beyond single digits as macro tailwinds build. With inflation easing, GST cuts flowing through and domestic demand stabilising, the brokerage expects consumption, construction and capex-linked sectors to show the earliest signs of operating leverage. However, any disappointment in earnings delivery could leave stocks vulnerable, given India is still trading at a premium to most global peers.

For investors, JPM recommends staying tilted toward domestically driven businesses with pricing power and volume visibility, while being cautious on export-heavy sectors exposed to global growth and currency swings. Stock selection, it says, will matter more than broad index moves as markets transition from multiple-driven gains to earnings-driven performance.