New Delhi [India], August 10 (ANI): Improving macroeconomic conditions are expected to support corporate earnings and equity markets in the medium term, but a sustained rise in crude prices could weigh on the earnings-led recovery in H2CY26, with the Nifty 50 potentially falling to around 23,030 by December 2026, according to an Axis Direct report.

The report noted, Q1FY27 earnings are expected to emerge as the next major catalyst for the equity markets, with investor focus shifting from macroeconomic concerns to corporate fundamentals.

With this, management commentary on demand trends, pricing power, margin sustainability, capital expenditure, exports and order inflows will be closely watched.

According to Axis Direct, sustained market gains are likely to depend increasingly on companies delivering earnings growth in line with or ahead of expectations.

However, the report flagged, if geopolitical conflict escalates, Brent crude could remain at USD 110-120+ a barrel, pushing India's current account deficit above 3.5 per cent of GDP and limiting the RBI's ability to cut rates. At the same time, a below-normal monsoon could further pressure growth and inflation.

The report highlighted, Indian equities went through a rough patch in H1 CY2026 with foreign ownership of the Nifty 500 falling to a multi-year low by March. 'The sharp correction in early CY26 has brought Nifty 50 valuations closer to their long-term historical average on a one-year forward earnings basis,' it said.

As per Axis Direct, if geo-political risks remain leading to earnings disappointment, the Nifty 50 could fall to around 23,030 by December 2026, based on a 16.5x P/E, while earnings downgrades could emerge across energy-sensitive sectors.

Simultaneously, the rupee could weaken towards Rs 100 per dollar, triggering additional FPI outflows of Rs 50,000-80,000 crore.

Sectorally, 'The FMCG and Paints sectors continue to face near-term margin pressures from elevated crude-linked raw material costs, particularly in packaging materials, solvents and derivatives,' it said, stressing 'margin recovery is likely to remain gradual until input costs stabilise further.' As per the report, earnings growth may continue to lag volume growth over the next few quarters.

'Overall, we continue to favour sectors with strong domestic earnings visibility, policy support, healthy balance sheets and sustainable cash-flow,' it noted, stressing, ' We remain constructive on Indian equities for H2CY26 while maintaining a preference for quality businesses with sustainable long-term growth prospects.' (ANI)