New Delhi

Earnings growth of Nifty-50 companies reached an 11-quarter high in the first quarter of FY27, even as Indian equity markets went through a period of price and time correction, according to a report by Kotak Neo.

The report expects the strong earnings momentum to continue, forecasting Nifty-50 earnings growth of approximately 18 per cent in FY27 and 13 per cent in FY28.

It said the improvement in corporate earnings has come alongside a correction in market valuations, making Indian equities more reasonably valued despite near-term uncertainty caused by the Middle East conflict and volatile foreign investor outflows.

The Nifty-50 is currently trading at 18.7 times its FY27 earnings and 16.5 times its FY28 earnings, according to the report.

Highlighting the difference between market sentiment and corporate performance, Kotak Neo said, "The widening gap between negative sentiment and improving valuations is creating a more constructive setup for disciplined, long-term investors."

The report said India's economic outlook remains steady, supported by private sector investment in value-added manufacturing. However, global uncertainties and foreign investor outflows continue to create challenges for the domestic equity market.

It also highlighted the role of domestic institutional investors in supporting the market amid foreign selling, with steady domestic buying providing crucial support.

Kotak Neo said the recent correction in Indian equities has brought valuations to more comfortable levels even as corporate earnings have improved. The combination of reasonable valuations and expected double-digit earnings growth could support the market over the longer term.

The report also pointed to the growing role of initial public offerings (IPOs) in expanding market participation and providing investors with new investment opportunities.

It noted that IPOs temporarily absorb domestic liquidity from the secondary market, but successful long-term listings expand the overall universe of investible companies.

"Ultimately, this dynamic strengthens financial markets, offering sustainable opportunities for wealth creation," the report said.

READ MORE: Ghazala Parveen uses art to challenge social stereotypes

While near-term global developments could continue to cause volatility, Kotak Neo believes India's long-term growth prospects remain supported by structural changes in the economy.

For investors, the report recommended gradually building a diversified portfolio of fundamentally strong businesses through staggered investments. It said this approach could help manage short-term market volatility while allowing investors to participate in a possible market recovery.