Bajaj Finserv AMC Research: Indian Equities Gain Support From Earnings Revival and Domestic Demand Despite West Asia Risks

Amid the noise of the West Asia war, a record-low rupee, and foreign portfolio investor (FPI) outflows, one of India's most closely followed asset management research teams is cutting through the market anxiety with a data-driven message: Indian equities are gaining genuine structural support from a broad-based earnings revival and strengthening domestic demand. Bajaj Finserv Asset Management Limited (Bajaj Finserv AMC) has published its latest market report — confirming that Nifty 500 companies posted 16% profit growth in Q3 FY26, the highest in 8 quarters — and laying out a measured but constructive case for Indian equities over the medium term, with key risks from the geopolitical conflict acknowledged explicitly. Here is the full breakdown.

The Core Finding: 16% Profit Growth — Highest in 8 Quarters

"Corporate earnings momentum has strengthened meaningfully over the past few quarters. The latest reporting season reflects a broad-based recovery in profitability, which provides a more supportive foundation for equity markets going forward," said Sorbh Gupta, Head-Equity at Bajaj Finserv Asset Management Limited.

The report highlights that credit growth has returned to double digits, reflecting stronger demand and improved liquidity, while consumption indicators have begun recovering following GST cuts. The confluence of corporate profit expansion, credit cycle recovery, and consumer spending revival is the most encouraging combination of domestic demand signals that Indian equity markets have seen in eight quarters — and it is precisely the kind of broad-based rather than narrow-sector recovery that institutional investors require to reestablish long-term conviction.

For the most comprehensive institutional analysis of India's equity earnings trends and sectoral rotation, the Economic Times Markets Earnings Centre aggregates quarterly results data, analyst estimate revisions, and sectoral profit tracking across the Nifty 500 universe in real time.

The Three Pillars of Domestic Demand Support

Bajaj Finserv AMC's research identifies three distinct domestic demand engines that are providing structural support to Indian equities — each independent of the global macro environment:

Pillar 1 — RBI Monetary Easing: The Reserve Bank of India's cumulative 125 basis points of rate cuts, along with liquidity infusion measures, have helped lower borrowing costs for companies and consumers. This monetary easing cycle — the most aggressive since 2019–20 — has reduced the weighted average lending rate across the banking system, directly improving EMI affordability for consumers and working capital costs for corporate borrowers. The transmission of rate cuts into actual consumer demand typically operates with a 6–9 month lag — meaning the full impact of the 125 bps delivered through Q3 FY26 will only fully materialise in Q1 and Q2 FY27.

Pillar 2 — Government Tax Measures and Consumption Stimulus: Corporate earnings should improve on government tax measures and RBI monetary easing, pointing to a broad-based cyclical recovery. The Union Budget's income tax exemption for individuals earning up to ₹12 lakh per annum — introduced in February 2026 — injects an estimated ₹1 lakh crore of additional disposable income into the urban middle class annually. GST cuts on select consumer categories have further supported discretionary spending recovery. These are structural, multi-year demand tailwinds that are immune to the near-term West Asia conflict's duration.

Pillar 3 — Benign Inflation and Rural Recovery: Domestic demand is strongly supported by the macro front, lower inflation, healthy post-monsoon harvests, and the wealth effect of gold. India's CPI at 2.75% — near a multi-year low — preserves household real purchasing power at a level not seen since 2019. The rural economy, supported by the best monsoon in six years and rising agricultural commodity prices, is contributing to consumption demand that urban discretionary spending alone cannot explain. Gold's wealth effect — with prices at record highs — is boosting the asset-backed borrowing capacity of rural and semi-urban households, further supporting retail credit growth.

CY25 Recap: Resilience Despite Six VIX Spikes Above 20

CY25 was marked by heightened volatility from shifting trade tariffs, geopolitical tensions, and persistent foreign institutional investor outflows, yet markets showed resilience underpinned by strong domestic fundamentals and a shift in investor dynamics.

The Nifty 50 delivered around 9% in 2025, while volatility was central to sentiment as India VIX crossed the 20-mark six times between January and May. It peaked at 22.79 in April, before averaging about 13.5 in the second half. Large-cap stocks provided relative stability while mid-caps returned around 5%. In comparison, small-caps fell approximately 8%, reflecting a flight to quality as investors favoured balance sheet strength and earnings visibility. This cap-size performance divergence confirms the maturation of India's equity market — where quality and earnings visibility commands an increasingly durable premium over high-beta, low-earnings-quality plays.

Sectoral Outlook: Domestic Cyclicals to Lead, Exports to Follow

The asset management firm forecasted sectoral leadership to be driven by domestic cyclicals and consumption, while exports could gain momentum as tariff-related uncertainties ease and the rupee stabilises. Industries tied to the domestic market, like auto and consumer goods, are expected to see significant growth. The auto sector grew by 21.7% in 2025. However, export-oriented sectors like IT lagged due to tariff uncertainty.

Bajaj Finserv AMC's sectoral call reflects a specific macro sequence: domestic consumption and credit-driven sectors lead first — FMCG, auto, consumer durables, retail banks, and NBFCs — then export-driven sectors including IT and specialty chemicals recover as tariff clarity emerges and the rupee stabilises. This sequence is consistent with India's historical post-shock recovery pattern, where domestic demand has consistently proven more resilient than export revenues during periods of global uncertainty.

The West Asia Risk: Bajaj Finserv AMC's Explicit Warning

Bajaj Finserv AMC does not shy away from the near-term risk that the West Asia war poses to its constructive medium-term thesis. A prolonged conflict could push up inflation, weaken the rupee and affect sectors such as aviation, paints, chemicals and oil marketing companies, while also triggering foreign portfolio investor outflows, according to Bajaj Finserv AMC.

The sectoral vulnerability list is instructive for portfolio positioning: aviation (jet fuel cost surge, airspace closures, demand shock), paints (crude oil-linked raw material cost inflation — TiO2, VAM, solvents), chemicals (feedstock price and supply chain disruption), and oil marketing companies (under-recovery risk if retail prices are not allowed to rise in line with crude). These are precisely the sectors where Bajaj Finserv AMC's positive domestic demand thesis requires the most active risk management.

Fixed Income Signal: Benign Core Inflation Supports Rate Path

Siddharth Chaudhary, Head-Fixed Income at Bajaj Finserv Asset Management Limited, said the revamped Consumer Price Index series with a 2024 base year confirms benign core inflation, strengthening the case for a stable policy environment. Meanwhile, fixed income markets also saw volatility after the Union Budget and the Monetary Policy Committee meeting, with FPI outflows and geopolitical tensions pushing the rupee to a record low and bond yields higher. Chaudhary's assessment — that the new CPI base year confirms benign core inflation — is the fixed income mirror of Sorbh Gupta's equity earnings conviction: both heads of investment at Bajaj Finserv AMC are reading the same domestic macro signal and reaching similar conclusions about medium-term opportunity.

Key Facts at a Glance

  • Research House: Bajaj Finserv Asset Management Limited
  • Head of Equity: Sorbh Gupta
  • Head of Fixed Income: Siddharth Chaudhary
  • Q3 FY26 Nifty 500 Profit Growth: 16% (highest in 8 quarters)
  • Credit Growth: Returned to double digits (reflecting stronger demand)
  • RBI Cumulative Rate Cuts: 125 basis points
  • India CPI (January 2026): 2.75% (near multi-year low)
  • Nifty 50 CY25 Return: ~9%
  • India VIX CY25 Peak: 22.79 (April 2025)
  • India VIX CY25 H2 Average: ~13.5
  • Large-Cap CY25 Performance: Relative stability (positive)
  • Mid-Cap CY25 Return: ~5%
  • Small-Cap CY25 Return: ~-8%
  • Auto Sector CY25 Return: +21.7%
  • Sectoral Leaders (2026 Outlook): Domestic cyclicals, FMCG, auto, consumer goods, banks, NBFCs
  • Sectors at West Asia War Risk: Aviation, paints, chemicals, OMCs
  • AI Disintermediation Risk Flag: IT sector near-term demand uncertainty
  • Standard Chartered Corroboration: Earnings revival and FPI return as positive 2026 signals
  • Income Tax Relief (Budget 2026): ₹12 lakh exemption — ₹1 lakh crore disposable income boost
  • CPI Base Year Revision: 2024 base year confirms benign core inflation (Siddharth Chaudhary)

Conclusion

Bajaj Finserv AMC's latest research delivers a measured but firmly constructive message for Indian equity investors: the structural case — rooted in 16% Q3 earnings growth, double-digit credit recovery, RBI's 125 bps of rate cuts, benign inflation, and robust domestic consumption — is intact and strengthening, even as the near-term West Asia war introduces volatility across oil-linked sectors and the currency.

The research's core insight is that India's equity support is now fundamentally earnings-driven rather than liquidity-driven or valuation-expansion driven — a qualitative shift that makes the current market far more resilient than the 2021–22 era of multiple expansion. For investors willing to navigate the near-term geopolitical noise with sectoral discipline — overweighting domestic cyclicals and underweighting aviation, paints, and OMCs — Bajaj Finserv AMC's framework provides a robust template for 2026 portfolio construction. Follow the latest Bajaj Finserv AMC research from Bajaj Finserv AMC's official insights page, Business Standard Markets, and Economic Times Earnings Centre.

Disclaimer: This blog post is for informational purposes only and does not constitute investment advice. Mutual fund investments are subject to market risks. Please read all scheme-related documents carefully and consult a SEBI-registered investment advisor before investing.