Sectors to focus on in FY27: After a difficult earnings season, Jefferies believes the worst of the downgrade cycle is now behind India Inc. The brokerage said corporate results have likely moved past their weakest phase, projecting 10% earnings growth in H2FY26 and a stronger 16% rise in FY27 as sectoral disruptions fade.
Jefferies noted that the first half of FY26 was weighed down by erratic weather, muted power demand, slower construction activity and delayed consumption, but these pressures are easing. Downgrades in financials have stabilised, while cuts in IT and energy appear largely complete.
The report highlighted that India Inc. has been navigating an unusual mix of challenges – a cooler summer, heavy monsoons that hit power and construction, post-GST demand postponement and rate cuts that compressed bank NIMs. Even so, Jefferies expects a clearer recovery ahead, estimating MSCI India’s 2HFY26 earnings growth at 10%, similar to the first half but with broader drivers. Consumption-linked sectors such as staples, autos, discretionary and utilities may see an 8-15 percentage point rebound, supported by GST rate cuts. “This is partly driven by volume uptick due to the recent GST rate cuts, and consequent operating leverage,” it said.
Jefferies also stressed that “no major earnings growth acceleration has been built in sectors such as financials, energy, IT, cement, and industrials,” indicating scope for positive surprises.
Revenue growth is projected at 13-14% in FY26 and FY27, with 20-basis-point annual EBITDA margin expansion, said the brokerage.
Jefferies’ recovery thesis is anchored in a cleaner base and policy support that is expected to lift key sectors. “Bulk of the earnings swings is likely to come from autos, banks, power and consumer; where low base and policy support is expected to drive an uptick,” it noted.
Fastest-Growing Sectors
Jefferies has identified cement and telecom as the frontrunners of India’s next earnings upcycle, projecting sharp FY27 EPS rebounds of 34% and 25% respectively. The brokerage argues that the market is shifting from turbulence to recovery as disruptions ease and sector fundamentals strengthen.
“Our analysis of corporate earnings suggests that the EPS trend should improve from 2HFY26 and through FY27, as downgrade pace likely reduces on significant disruptions in base,” Jefferies said. It added that “cement and telecom offer the strongest EPS growth.”
Cement sits firmly at the top of Jefferies’ FY27 acceleration list, with the brokerage expecting a 34% earnings surge as pricing normalises from multi-year lows after GST-related resets. Softer input costs and improved utilisation, combined with stabilising construction activity, give the sector its strongest setup in several years.
Telecom ranks second with a projected near-25% profit increase. Jefferies believes the sector’s underlying momentum becomes clearer once the large FY25-early FY26 one-offs fade. Airtel’s roughly ₹7,300 crore of exceptional gains and Indus Towers’ nearly ₹5,300 crore in recoveries had skewed comparisons. Adjusting for these, Jefferies sees Airtel delivering 74% profit growth in FY26 and 37% in FY27, while Indus’ normalised growth stands at 14% in FY26 and 7% in FY27. Tariff rationalisation, premiumisation and better receivable cycles underpin this rebound.
Autos, Banks and Other Cyclical Sectors Strengthen
Autos, hit last year by festival-driven volatility and rural demand swings, are positioned for a cleaner FY27 recovery. Jefferies expects Maruti Suzuki’s profit to rise about 18% and Samvardhana Motherson’s to climb roughly 30%, both benefiting from easier comparables and smoother supply chains.
Banks also feature prominently in the FY27 acceleration narrative. With NIM compression appearing close to its bottom, Jefferies expects a more stable operating year. Kotak Mahindra Bank’s net profit is projected to rebound from a ~10% decline in FY26 to ~22% growth in FY27, supported by an estimated 18-basis-point margin improvement. Axis Bank and SBI are also part of the strengthening cohort. Provisioning burdens have eased, but the key watchpoint remains deposit cost behaviour.
Sector Divergences
Pharma may lose momentum in 2HFY26 due to a high base created by Revlimid’s contribution. But Jefferies maintains that banks with steep NIM cuts, power utilities coming off two weak summers, and cement recovering from depressed pricing are among the most compelling earnings acceleration stories heading into FY27.
“Confidence on 13-15% FY27 EPS growth should support market sentiments, in our view,” Jefferies said, reinforcing its belief that the next leg of earnings strength will be more broad-based and less disruption-driven than the last two years.