Banks, IT, defence, power stocks likely to lead FY27 earnings upgrades, says Ajay Bagga

Market veteran Ajay Bagga sees a clear split emerging in India Inc.’s earnings outlook for FY27, with banks, IT, defence and power-linked businesses positioned for meaningful upgrades, while consumer staples and two-wheelers could face pressure from weak rural demand. His comments come as investors reassess sector leadership amid an improving earnings backdrop and a broader recovery in market sentiment.

Bagga’s sectoral call is significant because it shifts the focus from a broad-based market rebound to a more selective earnings-driven rally. With June-quarter results unfolding and foreign flows showing early signs of stabilisation, the next leg of the market movement may depend less on liquidity and more on where earnings upgrades actually materialise.

Rural stress clouds staples, two-wheelers

Bagga flagged consumer-facing rural plays as the most vulnerable pocket. “Consumer staples will be edgy because of the iffy monsoon,” he said, adding that even though rainfall trends have improved, “rural demand will be constrained.”

That caution extends to two-wheelers, which remain closely tied to hinterland consumption. In contrast, he argued that urban demand is holding up better, creating a divergence within the broader consumption basket and favouring categories with stronger city-led demand.

Autos, telecom and banks in stronger lane

Among cyclical sectors, Bagga remains constructive on automobiles, especially passenger vehicles and commercial vehicles. The view suggests that discretionary urban spending and freight-linked activity are proving more resilient than rural-led consumption segments.

He is also positive on telecom and, more notably, financials. While acknowledging that “NIMs have come down slightly” and margin pressure persists, Bagga said strong credit growth and healthy capitalisation should support further upside. “The banks are very well capitalized, and there is credit growth,” he said, adding that these factors could help banks “get re-rated even more further.”

IT rerating gathers momentum

Bagga also reiterated his bullish contrarian stance on information technology, a sector that had lagged for an extended period. “IT was a contrarian call about three months back. Now it seems to be playing out,” he said.

According to him, the recent pickup in IT indices over the last few weeks signals the beginning of a broader rerating cycle. That matters for the market because IT remains a heavyweight sector, and any sustained revival could materially improve benchmark earnings expectations.

Defence and power remain structural bets

Beyond near-term earnings, Bagga identified defence, industrials and the entire power ecosystem as structural outperformers. He said defence remains backed by strong order books, while the power opportunity spans “renewables to storage, to power grids, to transmission, to power generators.”

That sweeping view aligns with the broader market narrative visible through the interview, where investors are increasingly rewarding sectors linked to infrastructure build-out, domestic capex and long-duration policy support. If that trend holds, FY27 upgrades may be led less by traditional defensives and more by sectors tied to India’s investment cycle, added Bagga.