Nominal GDP growth set to surge to 12%. Why the stock market may still struggle to rally

India’s nominal GDP growth is expected to accelerate sharply to 11.5%-12% in FY27 from about 9% a year earlier, setting the stage for stronger corporate earnings. But that macro improvement may not translate into a broad-based stock market rally.

Jefferies expects corporate earnings growth to rise towards 14% in FY27, following 10% growth for MSCI India in FY26. Earnings momentum has already improved, with companies excluding oil and gas and metals recording 18% year-on-year earnings growth in the June 2026 quarter, the strongest pace in 10 quarters.

Yet India’s elevated valuations, rising equity supply and the possibility of slower domestic flows could limit returns even as the economy accelerates.


The brokerage’s preferred stocks are concentrated in sectors like lenders, power, ports and real estate, that are expected to benefit from the investment cycle and higher nominal growth.

Jefferies has assigned a potential upside of 24% to HDFC Bank, 35% to Axis Bank and 28% to SBI. In power, its target prices imply potential upside of 30% for NTPC, 49% for Adani Energy Solutions and 39% for JSW Energy. It sees 31% potential upside for Adani Ports and 19% for JSW Infrastructure.

The brokerage has identified DLF and Godrej Properties as its top real estate picks, citing improving sales, stronger balance sheets and valuations below long-term averages.

However, even if these stocks perform well, they may not be sufficient to drive a broad market rally.

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India remains expensive against emerging markets

MSCI India trades at around 20 times one-year forward earnings, broadly in line with its 10-year average. The concern is India’s premium over other emerging markets.

The country’s valuation premium is currently about 98%, compared with a 10-year average of 63%. Jefferies also estimates that companies accounting for 31% of MSCI India’s weight trade at valuations more than 10% above their historical averages.

That leaves less room for multiple expansion. Earnings will need to do most of the heavy lifting.

At the same time, about 38% of the index trades at valuations more than 10% below historical averages, suggesting that the market is not uniformly expensive. But the opportunity is selective rather than broad-based.

Equity supply could absorb fresh demand

Domestic investors continue to provide strong support to Indian equities through mutual-fund flows and systematic investment plans. However, Jefferies expects the pace of domestic flows to moderate.

SIP returns have weakened, particularly in large caps. One-year SIP returns for the Nifty 50 stood at minus 1.3% as of July 31, 2026, compared with 14.5% for the Nifty Midcap 150 and 16.9% for the Nifty Smallcap 250.

Over three years, the Nifty 50 delivered 4.9%, compared with 13.4% for the midcap index and 11.1% for the smallcap index.

“Domestic flows should protect downside risks,” Jefferies said, but added that rising supply could “cap broad market returns.”

That supply includes initial public offerings, promoter sales, private equity exits and government disinvestment. In other words, even strong domestic and foreign inflows may be absorbed by new equity issuance and stake sales.

Banks: growth is strong, but normalisation is ahead

Bank credit growth has surged to 18%, partly due to higher working-capital demand and the freezing of bond and external commercial borrowing markets during the West Asia conflict.

Jefferies expects credit growth to normalise to 13%-15% from the second half of FY27. It forecasts 14% loan growth and 13% net-interest-income growth for its bank coverage over FY26-FY29.

The brokerage expects margins to stabilise and asset quality to remain resilient. But PSU banks face additional risks from the transition to expected-credit-loss provisioning norms from April 2027 and a potential increase in employee costs following wage negotiations.

That makes earnings growth supportive, but not necessarily strong enough to trigger a sector-wide re-rating.

Power: a major opportunity, but execution matters

Power and transmission remain among the strongest structural themes in the report. Jefferies expects power generation and transmission investment to rise 2.1 times to more than $200 billion in FY26-FY29 compared with FY22-FY25.

Power demand is expected to grow at a 6% compound annual rate through FY29. Renewable capacity is projected to rise to 49% of total capacity from 42% in FY26.

But the transition will require both renewable and thermal capacity. Renewable plants operate at lower utilisation and are concentrated during daylight hours, while thermal power remains necessary for baseload supply and as a backup for renewable generation.

That creates significant opportunity for NTPC, Adani Energy Solutions and JSW Energy. However, the investment thesis depends on project execution, capacity additions and the conversion of a large transmission pipeline into actual orders and earnings.

Ports: privatisation offers upside, but conversion is uncertain

The government has identified 216 million tonnes of port capacity for terminal privatisation at major ports. Jefferies estimates the opportunity could be worth about ₹1 trillion over four years.

Adani Ports and JSW Infrastructure already account for 29% of India’s port capacity and 34% of volumes. Their combined share of industry volumes could rise to 44% by FY30.

However, the actual pace of privatisation, capacity commissioning and cargo growth will determine how quickly that opportunity translates into earnings. Port companies are also expanding into logistics, which could boost growth but increase competition across the broader transportation ecosystem.

Real estate: strong demand, but not a market-wide trigger

Residential property sales are expected to grow 10%-15% in FY27, while listed developers are expected to sustain 15%-20% sales growth through market-share gains.

The sector is benefiting from premiumisation, developer consolidation and lower debt levels. Office vacancies have fallen to six-year lows, while rents have risen in key markets.

Still, the real estate recovery remains concentrated among organised developers. Industry-wide sales growth and moderate pricing gains may support a selective stock rally, rather than a broad market surge.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)