BNP Paribas has projected that India's benchmark Nifty 50 index could reach 29,500 by the end of 2026, representing approximately 15.00% upside from current levels. The French brokerage expects mid-teens returns driven primarily by earnings growth rather than valuation expansion, as outlined in its India Strategy 2026 report.

Investment Strategy and Stock Recommendations

The brokerage is recommending investors focus on large, domestically oriented stocks positioned to benefit from policy support, easing financial conditions, and consumption recovery. BNP Paribas expects large-cap stocks to continue outperforming mid- and small-cap segments, noting that valuations remain more comfortable at the top end of the market.

Policy Tailwinds and Earnings Outlook

BNP Paribas highlighted that policy actions implemented in 2025 are beginning to show positive results. These measures include income tax cuts, GST rate reductions, and a cumulative 125 basis point reduction in interest rates. The brokerage expects these initiatives to lift growth and earnings in 2026, particularly benefiting domestically oriented sectors.

The firm noted increased confidence in FY27 earnings prospects, expecting Nifty 50 returns to be earnings-led rather than driven by multiple expansion. For the financial sector specifically, BNP Paribas anticipates a rebound in earnings momentum for private sector banks in FY27, supported by credit growth and GST rationalization benefits.

Sector-Specific Opportunities

In the automotive sector, reduced GST rates have lowered on-road vehicle prices and boosted demand, setting the stage for margin expansion in 2026. The telecom sector remains attractive due to expected tariff hikes, improving free cash flows, and potential industry catalysts.

After a challenging 2025, BNP Paribas has turned positive on consumer staples, citing GST cuts, a favourable earnings base, and macro tailwinds including lower food inflation and improving rural sentiment. Beyond the primary recommendations, the brokerage's additional buy ideas include:

• Infosys (IT services)
• Amber Enterprises (consumer durables)
• JK Cement (building materials)
• Aster DM Healthcare (healthcare)
• Aurobindo Pharma (pharmaceuticals)
• Titan and Swiggy (broader consumer space)
• Doms Industries (consumer staples)

Market Risks and Valuation Concerns

Despite the positive outlook, BNP Paribas cautioned that Indian equity valuations remain elevated, with the Nifty 50 trading above its long-term average. This limits scope for further re-rating, leading the brokerage to expect 2026 market returns to largely mirror earnings growth.

The brokerage noted that India's strong domestic flows and improving earnings outlook could make it an attractive hedge if global investor enthusiasm for artificial intelligence-linked trades diminishes, reinforcing its constructive stance on Indian equities heading into 2026.

BNP Paribas Securities India has expressed strong confidence in corporate earnings recovery for the next fiscal year, projecting the benchmark Nifty 50 index to touch 29,500 points by year-end. Despite prevailing economic uncertainties, the investment firm maintains an optimistic outlook on large caps, banking, IT, and telecom sectors while identifying potential opportunities in energy transition.

Banking Sector to Drive Earnings Recovery

Kunal Vora, Director and Head of India Equity Research Analyst at BNP Paribas Securities India, emphasized that private sector banks will provide significant support for overall earnings growth. The banking sector's recovery prospects appear particularly promising given its substantial market representation.

Vora noted that the bounce back in private sector banks will provide a substantial cushion for earnings growth, supported by expected improvements in margins alongside credit expansion.

Sector-Wise Growth Drivers

The investment firm has identified multiple sectors positioned for growth recovery. In telecommunications, BNP Paribas anticipates a high likelihood of tariff hikes, which could boost sector profitability. The auto sector has demonstrated strong momentum since November, attributed to GST rate cuts, with expectations for continued performance over the next year.

Key Sector Highlights:

• Consumer Staples: Expected 10-12% growth from very low base levels
• IT Services: Potential benefits from 5% currency depreciation
• Technology Sector: Approaching bottom in growth rates with possible high single-digit expansion

Market Valuation and Investment Outlook

Regarding market segment preferences, BNP Paribas favors large caps over mid and small-cap stocks due to relative valuation comfort. The firm observes that mid-caps appear slightly better positioned compared to small caps, with mid-caps approaching normal premium levels historically maintained over large caps.

Budget Expectations and Policy Impact

Vora expressed measured expectations for the upcoming budget, suggesting limited room for significant policy changes. The government has already implemented substantial reforms including income tax and GST rate reductions. The analysis indicates that further tax rate cuts across direct, indirect, and corporate taxation appear unlikely given current fiscal constraints.

The firm anticipates a status quo budget approach, with the full impact of GST rate cuts expected to materialize in FY27 rather than FY26. Nominal GDP growth rates remain moderate, and RBI dividend levels are already elevated.

Sector Preferences and Investment Strategy

For the next fiscal year, BNP Paribas maintains positive views on financials and telecom sectors. In the automotive space, four-wheelers appear particularly attractive following GST rate cuts. Consumer staples are expected to show incremental improvement after experiencing no growth for the past one-and-a-half years.

Sector Outlook Summary:

• Bullish: Financials, telecom, four-wheeler auto segment, consumer staples
• Bearish: Infrastructure (due to government focus shift toward consumption)
• Mixed Views: IT services (attractive valuations but uncertain growth)
• Neutral: Pharmaceuticals (no significant earnings growth expected)

The investment firm's analysis suggests that corporate earnings will be primarily driven by policy initiatives and sustained domestic demand, supporting their optimistic market projections for the coming fiscal year.