Tax Cuts, GST Relief, RBI Support Keep India Growth Engine Running, Says UBS — Check Portfolio Changes
UBS expects India’s growth momentum to remain strong after the economy posted an above-trend GDP expansion of 8.2% in the September quarter. UBS said growth continues to be supported by targeted income tax cuts, GST reductions and supportive monetary policy, which together leave room for further upside.
Following this performance, the brokerage has raised its growth forecast to 7.4% for FY26, before expecting it to normalise to 6.4% in FY27.
Against this macro backdrop and supported by solid second-quarter earnings, UBS expects corporate earnings growth to move closer to low double digits. It projects earnings growth of 10.2% in FY26, accelerating to 15.4% in FY27.
Portfolio Changes
UBS has also made changes to its India portfolio. It has added Bharat Heavy Electricals and Cognizant Technology, each with a 2 percentage point weight, and Hyundai Motor India with a 4 percentage point weight. Mahindra & Mahindra, CG Power & Industrial Solutions and L&T Finance have been removed. The brokerage increased its exposure to Larsen & Toubro by 1 percentage point and Axis Bank by 2 percentage points, while trimming Siemens by 1 percentage point and Hindustan Unilever by 2 percentage points.
On trade, UBS said India’s tariff negotiations with the US are progressing, and while a final settlement is not yet certain, the trajectory appears constructive. Data so far suggest the impact of the current 50% tariff rate on India has been limited. Vehicle sales have shown strong growth following GST rate cuts, and although UBS does not expect this pace to persist, the trend is being supported by steadily improving bank loan growth. Earlier income tax cuts, subsequent GST reductions in 2025, contained inflation and continued support from the RBI are also providing a favourable backdrop.
On Earnings Growth
UBS reiterated that earnings growth of 10.2% for FY26 remains achievable and expects a sharper acceleration in FY27 to 15.4%. The financial sector remains the primary driver, led by banks, with non-bank financial companies and insurance firms contributing to a lesser extent. Financials continue to be one of UBS’s preferred sectors. The brokerage believes FY27 could be a particularly strong year, potentially exceeding double-digit growth, as loan growth and asset quality continue to improve, with net interest margins also expected to strengthen by then.
On IT services, UBS said the impact of AI is becoming clearer, with both positive and negative implications. While AI-driven productivity gains could reduce headcount needs, especially in seat-based billing models, demand for customised AI solutions remains strong.
UBS noted that hyperscalers are unlikely to meet all client requirements on their own. Over time, these forces are likely to balance out rather than result in a purely negative outcome, with Indian IT companies already adapting by engaging more directly in AI initiatives and evolving their business models.
