India Markets: Perception vs Earnings
Indian equities are being priced on fear, but the September-quarter results so far describe something sturdier.
The Nifty 50 closed out its worst September in 25 years, foreign investors have pulled a record sum out of Indian stocks, and the RBI has just raised rates for the first time since early 2023. Yet India's largest banks and IT companies have mostly reported mid-teens to twenty-percent profit growth.
That gap between how the market feels and what companies are earning is the most useful lens for investors right now. The question is not whether the headlines are bad. They are. The question is how much of that bad news the price already carries, and whether the earnings justify that discount.
The perception: a market that expects the worst
The macro backdrop explains the mood. Four forces are working on sentiment at once.
West Asia and oil. The US–Iran conflict has kept energy risk premiums high for most of the year. Brent crude was still trading near $105 a barrel in mid-October. For an economy that imports most of its oil, that is a direct hit to the trade deficit, inflation and corporate input costs.
A weak rupee. The rupee crossed 96 to the dollar in July and has been Asia's worst-performing currency in 2026. A weaker rupee raises the cost of imports and erodes dollar returns for foreign investors, which feeds the next point.
Record foreign selling. FIIs withdrew roughly ₹3.05 lakh crore from the secondary market in the first nine months of 2026, the first time outflows have crossed ₹3 lakh crore. September alone saw about $4.1 billion of net selling, led by financials. The selling continued into October, with outflows of nearly ₹38,000 crore in the first week or so. Part of this is reallocation: AI-heavy markets such as Taiwan and South Korea have pulled global capital away from India.
A turn in the rate cycle. On 7 October the RBI's MPC raised the repo rate by 25 bps to 5.50% and shifted its stance to "calibrated tightening". CPI rose to 4.8% in August, and the RBI expects headline inflation to average close to 5.8% over the next three quarters. Rate cuts are off the table for now.
The damage shows up in prices. HDFC Bank, the index's largest financial weight, was down about 26.5% for the year going into its results. Through early October the Nifty traded between roughly 22,200 and 22,800, well below the 25,900–26,000 zone it held in October 2025.
The earnings: better than the mood
The first two weeks of Q2 FY27 (July–September 2026) results tell a different story. Brokerages went in expecting a muted IT quarter and a soft banking quarter. What came out was largely in line or better.
Company | Q2 FY27 net profit | YoY growth | Versus expectations |
TCS | ₹13,884 cr | +15% | Beat (poll ₹13,673 cr) |
HCLTech | ₹5,132 cr | +21.2% | Strong; revenue +11.5% |
ICICI Bank | ₹14,843 cr | +20.1% | Beat by about 4% |
Axis Bank | ₹7,003 cr | +38% | Strong |
HDFC Bank | ₹19,510 cr | +4.7% | Roughly in line; +12.6% excluding treasury gains |
The underlying details matter as much as the headlines. ICICI Bank's loan book grew 30% year on year, and asset quality improved across the large private banks: ICICI's gross NPA fell to 1.20% and HDFC Bank's to 1.11%. TCS reported annualised AI revenue of $3.1 billion, up from $2.6 billion a quarter earlier, alongside $9.6 billion of new contract value. HCLTech disclosed $219 million of advanced AI revenue.
The Nifty IT index rose about 11.7% in the week to 16 October, its best week since October 2008. The Nifty moved from 22,232 on 8 October to 23,146 by 16 October, a gain of roughly 4% in six sessions, driven almost entirely by results. Breadth stayed weak, though: midcap and smallcap indices fell on some of the strongest large-cap days.
What the price implies
The right question is not "will earnings grow?" but "what growth is the market already paying for?" Reading expectations from price, rather than forecasting, gives a cleaner answer.
Start with consensus-style numbers. In early September, estimated Nifty EPS at ₹1,349 for FY27 and ₹1,537 for FY28, and put the 15-year average one-year forward P/E at 19.6x. Using those inputs and the 16 October close of 23,146 (my arithmetic, not the broker's):
The Nifty trades at about 17.2x FY27 and 15.1x FY28 earnings.
At its 15-year average multiple on FY27 earnings, the index would sit near 26,400, about 14% higher.
Flip it around: at 19.6x, today's price justifies FY27 EPS of only about ₹1,181. That is roughly 3% above the implied FY26 base, against the 15–18% growth that consensus estimates embed.
In other words, if you believe historical multiples are fair, the market is pricing in close to flat earnings for FY27.
The price action around results confirms that the bar is low. TCS rose about 5.5% on a quarter with 0.5% sequential constant-currency growth. When a stock rallies on modest numbers, expectations were depressed, not demanding.
This is the core of the perception-versus-earnings gap. Fear has compressed the multiple. The earnings line, at least for large caps, has not broken.
Where the pessimists may be right
A discount is not automatically an opportunity. Markets sometimes price in earnings cuts before analysts make them. Several cracks deserve attention.
Quality of IT growth. TCS's profit grew 15%, but revenue grew only about 2.4% in dollar terms and operating margin slipped to 24% from 25.2% a year ago. Rupee depreciation is flattering rupee-reported numbers. A stronger rupee or weaker US demand would expose that.
Bank margins. Net interest margins are compressing. HDFC Bank's NIM fell to 3.16% from 3.26% in the previous quarter, and ICICI's to 4.18% from 4.36%. The RBI hike will raise deposit costs with a lag, which may squeeze margins further in the second half.
Oil as a slow tax. Crude above $100 does not hit every quarter at once. It works through input costs for autos, paints, chemicals and airlines, and through government finances. These pressures show up in December and March quarters more than September.
Estimates still to come down. Nifty EPS forecasts were cut by 9–9.5% for FY26 and FY27 earlier in this cycle. If consensus FY27 numbers fall another 5–8%, the apparent cheapness shrinks quickly.
Narrow leadership. The October market was carried by IT and large private banks. The broader market has not joined in.
What this means for investors
The market is pricing a recession in Indian earnings that the results have not yet shown. That asymmetry favours patient capital, with three caveats.
First, stay with earnings you can see. The gap between price and fundamentals is widest in large, profitable businesses with visible growth. These are where the market's pessimism is least supported by the numbers.
Second, don't try to forecast the war or the oil price. Nobody can. Ask instead what the price assumes and whether that assumption looks too harsh. Today, for the index as a whole, it looks harsh.
Third, let your allocation do the work. Money needed in the next few years should not be in equities regardless of valuation. For long-term goals, phases like this are when disciplined rebalancing into equity tends to pay off, because fear lowers the price of the same earnings.
Perception moves faster than earnings in both directions. Right now, it has run ahead on the downside. The next few weeks of results will show whether earnings keep holding the line.
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