India’s corporate earnings growth has been contracting since Q1. The Adj. PAT growth of the Nifty5o index was 6.7% in Q1 and 6.5% in Q2 from 22.5% in FY24. In Q3 there is some traction in revenue and profitability, as expected. Data from the Nifty500 index, India’s broad index, reflects that India’s total sales have improved by 5%, EBITDA (operating profit) by 14% and PAT by 10%.
Encouragingly, economic data and management insights suggest that Q4 is expected to show improvement both on a QoQ and YoY basis. While it is still premature to predict the final figures as of March 31, initial estimates indicate PAT growth in the range of 10-12%. This view is built on the assurance that government expenditure is quadrupling, high-frequency monthly data indicates that volume demand has improved in urban & rural markets and inflation is reducing, resulting in a reduction in corporate costs.
Despite a 16% decline in the broader Indian stock market, valuations remain high, with the one-year forward P/E at 19x—more than twice the average 7-8% EPS growth over the past nine months. While Q3 earnings have shown some momentum, overall results have been slightly below expectations, largely due to a 55% downgrade in earnings among Nifty 50 companies.
Nevertheless, if the traction in corporate earnings growth recovers in FY26 towards 15%, which is India’s historic long-term growth number, we can expect traction in the domestic stock market from April to Sept. Presently, consensus estimates place India’s EPS growth at around 12-13%. This momentum is primarily driven by a low base effect from FY25, coupled with strengthening domestic demand, supported by improvements in both urban and rural consumption. Available data indicates that corporate earnings growth is on a recovery trajectory.
Trade Deal
Another notable development for India was the preliminary agreement with the United States to expand total trade from $200 bn to $500 bn by 2030. The pact is expected to be finalized within the next two to three quarters, aiming to enhance bilateral trade through a newly structured tariff framework. India has already reduced the tariff on US imports in categories like auto, auto parts, aircraft, energy storage, precious metals, EV batteries and others. Additionally, India plans to increase crude oil and defence imports from the U.S. as part of its strategy to reduce the trade surplus deficit.
The tariffs announced so far by US President Donald Trump are expected to be imposed in March-April, but they are not anticipated to impact India significantly. The 25% tariff on metals is likely to have a mixed effect, particularly if China redirects its exports to India due to a drop in demand from the US. The proposed tariff on pharmaceuticals is also not expected to significantly affect India, which supplies 50% of the generic products sold to consumers in the US. These products are essential, of low value, and in high demand, limiting the impact on both suppliers and consumers. However, companies that may need to shift their products to the US could face a reduction in margins.
The view is that if we have a good trade pact with the US, the tariff war threat may not hurt India. Currently, the world is concerned about the risk of reciprocal tariffs from the US, which is against the WTO norms. This is expected to slow down world trade due to retaliation from other countries. At least, India is able to develop an edge in the proposed tariff war.
(The author is Head of Research, Geojit Financial Services)
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