In investing, the relationship between company performance and shareholder returns is rarely straightforward. Earnings growth, while critical, does not always translate into stock market gains.
To understand the earnings potential, it helps to look at the journey corporate India has taken over the past decade. Today, companies are better capitalised, and governance standards stronger.
Supporting the renewed strength are powerful tailwinds. Policy continuity, rapid digital adoption, and rising consumer aspirations are converging to create a durable growth runway. Structural reforms such as GST are simplifying compliance. Infrastructure upgrades and shifts in global supply chains are adding further momentum.
Together, these shifts present opportunities and pose questions. The opportunities lie in the sectors poised to drive India’s next earnings cycle. When and at what price investors choose to participate will determine how much of this growth translates into returns.
Here are a few sectors that could shape India’s next earnings wave:
Telecom
Data is the new oxygen of the economy. While tariff hikes have slowed subscriber growth, they also signal a crucial pivot towards profitability.
Telecom is no longer a volume story; it is becoming a value story. New trends are putting the sector on a more durable growth trajectory supported by healthy margins. The risk factor here is that incremental profitability hinges on tariff hikes. With valuations elevated, the point of investment will be the key.
Oil & Gas
The oil and gas sector, long considered volatile, is becoming more stable. Pricing reforms, especially in domestic gas, have improved predictability. Formula-based pricing linked to the Indian crude oil basket has enhanced earnings visibility, while refining margins remain resilient, supported by sustained demand and global capacity dynamics. The risk factors include global crude oil price volatility and subsidy policies.
Travel & Leisure
Few sectors capture India’s changing consumption patterns as vividly as travel. Domestic air traffic reached 165.4 million passengers in FY25, surpassing pre-pandemic levels. Hotels are enjoying healthy occupancies, while airport infrastructure is expanding to keep pace. This is not a temporary rebound but a structural shift. For airlines, hotels, and allied services, this represents a multi-year growth opportunity. The risk factor here is that margins are vulnerable to fuel costs and competition. Also, many stocks have already priced this in.
Financial Services
Perhaps the most profound shift is unfolding in how Indian households save. The tilt away from physical assets toward financial products such as mutual funds, insurance, pension is unmistakable.
Banks, backed by stronger balance sheets, are entering a new credit cycle. Insurance companies are leveraging low penetration levels and rising risk awareness. Capital markets are seeing record participation from retail investors across asset classes. For those considering this theme, valuations in leading franchises are already rich, thereby limiting the room for a significant upside.
Power Equipment
Suppliers of equipment and products across the power value chain are benefiting from a strong global spending cycle driven by data centre buildouts, grid strengthening, and renewable investments. In India, this is reinforced by demand for back-up power. Fossil fuels have made a comeback, and if nuclear spending accelerates, another growth leg could open up. Amidst these positives, the risk is that a large part of this growth is already priced in, and future returns will depend on valuations.
Steel
The global steel sector is undergoing a rebalancing, with China reducing exports to balance slowing domestic demand. Higher safeguard duties have created a floor for Indian steel prices. Locally, improved rural demand following strong monsoons and a potential pickup in passenger vehicle sales, boosted by impending GST cuts, could further support growth. While at it, be conscious that steel remains exposed to global commodity cycles and valuations can swing sharply.
The Bottom Line
Each of these sectors is backed not just by cyclical tailwinds but also by structural drivers. But investing is never just about identifying sectors; it is about valuation discipline as well. So, prudence on when and at what price to participate may prove just as important as identifying the right sectors.
Views are personal. The author is Managing Director & CEO of ICICI Prudential AMC.
