Market poised for earnings revival in coming quarter: JM Financial MF's Satish Ramanathan

India’s capital market may be on the cusp of a significant earnings revival, driven by favourable macroeconomic conditions, improved corporate balance sheets, and a resurgence in investor confidence, according to Satish Ramanathan, CIO-Equity, JM Financial MF.

"Despite concerns around high headline valuations, especially in the large-cap space, India’s equity markets are not overly expensive when viewed through a growth-adjusted lens. The large-cap index, which currently trades at around 20 times forward earnings for an estimated 10% growth, gives a Price to earnings to growth (PEG) ratio of 2, typically seen as stretched. However, midcaps tell a different story, growing at 24% and trading at 30 times earnings, the PEG ratio is a more reasonable 1.2. When combined, the large and midcap universe shows a PEG of 1.66 which reflects a healthy premium for growth in a fast-developing economy like India. In an economy like India, you cannot separate growth from valuation. The market will always command a growth premium adding that traditional metrics like standalone PE ratios fail to capture the nuances of an evolving, high-potential economy," he says. 

While addressing their NFO launch of JM Large & Mid Cap Fund which opens today and closes on July 18, 2025, Ramanathan says, India’s equity markets are showing strong signs of a cyclical revival, underpinned by falling interest rates, improved liquidity conditions and strengthening macroeconomic fundamentals. These developments are collectively boosting confidence among investors and corporates, setting the stage for a potential surge in earnings growth in the coming quarters, he adds. 

According to him one of the key drivers of this optimism is the revival in liquidity across the system. As borrowing costs decline and interest rates remain on a downward trajectory, Indian companies are gaining easier access to capital. At the same time, input costs have softened significantly due to a cooling Wholesale Price Index (WPI), leading to improved operating margins. Energy and raw material prices have remained benign, creating further room for margin expansion. The overall cost of capital has also dropped meaningfully, particularly for companies operating on the short end of the yield curve. With short-term borrowings becoming cheaper, the positive impact of lower interest rates is expected to reflect rapidly in corporate earnings.

Deepak Gupta, Senior Fund Manager, JM Financial MF, says large Indian conglomerates have recently undertaken leveraged buyouts, indicating growing confidence in long-term profitability and a more stable credit environment. This reawakening of risk appetite marks a shift from the cautious stance maintained over the past two years shows that corporate sentiment has seen a resurgence.

Other key factors as per Amitabh Mohanty, Managing Director & CEO, JM Financials MF, include the Reserve Bank of India (RBI) that has played a pivotal role in supporting this turnaround. With policy rates nearly 100 basis points below their peak, the central bank has moved decisively into an accommodative phase. Uncharacteristically, it is now providing forward guidance on rate cuts and liquidity support an approach that has added visibility and confidence for both corporates and capital markets.

On the macroeconomic front, India’s fiscal and external indicators continue to improve. The fiscal deficit is well managed, the trade deficit is narrowing, and the current account has turned surplus all of which point to a healthier macroeconomic backdrop. Moreover, corporate financials are in a strong position. In FY25, NSE 500 companies, excluding financials, generated ₹14 lakh crore in profit cash flows, a figure that now exceeds the Government of India’s annual capital expenditure. This growing financial strength of the private sector highlights its increasing ability to drive future investment and growth, he adds.