NewsStocksHDFC Securities Forecasts 12-13% Earnings Growth in FY27 Despite Limited Market UpsidesHDFC Securities Forecasts 12-13% Earnings Growth in FY27 Despite Limited Market Upsides
HDFC Securities projects 12-13% earnings growth in FY27 versus 10% in FY26, driven by recovery in BFSI, IT, and consumer sectors representing 60% of market cap. Despite improved earnings quality, market upsides are limited to 8-10% from current Nifty levels around 26,000 due to valuation constraints. The firm maintains overweight on financials while adjusting positions across sectors, recommending a disciplined, stock-specific approach with buying on dips strategy.
*this image is generated using AI for illustrative purposes only.
HDFC Securities expects earnings growth to accelerate significantly in the upcoming fiscal year, though market returns may remain constrained by current valuations. Varun Lohchab, Head of Institutional Research at HDFC Securities, projects earnings growth of 12-13% for the 250 stocks under the firm's coverage in FY27, representing an improvement from the anticipated 10% growth in FY26.
Earnings Quality Expected to Improve
The research head emphasized that "the quality of earnings will be better in FY27," highlighting a fundamental shift in growth drivers. FY26 growth was primarily propelled by commodity-linked sectors such as oil & gas and metals, which typically command lower price-to-earnings multiples. This contrasts sharply with the expected FY27 performance, where growth is anticipated to be driven by higher-quality sectors.
Key Sector Recovery Anticipated
The projected improvement stems from expected recovery in three major market segments that collectively represent approximately 60% of the market capitalization:
- Banking, Financial Services and Insurance (BFSI)
- Information Technology (IT)
- Consumer sectors
These sectors traditionally trade at higher price-to-earnings ratios compared to commodity-linked industries, suggesting improved earnings quality in the coming fiscal year.
Limited Market Upsides Despite Growth
Despite the positive earnings outlook, HDFC Securities remains cautious about market returns. From current Nifty levels around 26,000, the absolute upside over the next 6-12 months is projected to be limited to 8-10%. Lohchab attributes this constraint to current market valuations, which are expected to cap potential gains.
Given these conditions, the firm recommends a strategy of buying on dips and maintaining a disciplined, stock-specific investment approach.
Strategic Sector Positioning
HDFC Securities has outlined its current sector allocation strategy based on expected performance and valuations:
| Sector Positioning: | Current Stance |
|---|---|
| Financials (Banks & NBFCs): | Overweight |
| Consumer Staples: | Moving from underweight to neutral |
| Information Technology: | Moving from underweight to neutral |
| Oil & Gas: | Underweight |
| Cement: | Underweight |
| Metals: | Reducing to neutral/slight underweight |
| Consumer Discretionary: | Marginally underweight |
The firm is actively reducing its underweight positions in consumer staples and IT sectors, moving them closer to neutral allocations. Conversely, it maintains underweight positions in oil & gas and cement while trimming exposure to metals toward neutral or slightly underweight positions.
Market Outlook and Investment Strategy
The research indicates a fundamental shift in market dynamics, with growth expected to transition from commodity-driven sectors to quality sectors that traditionally command premium valuations. However, the current market environment suggests that investors should temper return expectations despite improving earnings fundamentals.
The combination of better earnings quality and sector rotation toward higher-multiple industries presents a mixed outlook for investors, with improved fundamentals offset by valuation constraints in the near term.
16
