India's corporate earnings growth stays weak, banks and IT firms disappoint
The Indian economy is expected to grow at a world-beating 6.5% in the current fiscal year and inflation has been low. Yet, sectors from banks to IT services are facing earnings pressure from pockets of weakness in domestic and global demand.
Aggregate profit growth for 38 of the Nifty 50 firms that have reported so far stood at just 7.5%, according to Motilal Oswal Financial Services. Jefferies said that full-year earnings per share estimates for 113 companies on the MSCI India index have been trimmed by 1.7%, with growth now projected at 8%.
U.S. President Donald Trump's 25% tariff on shipments from India threatens to further cloud the outlook for export-heavy sectors. Trump has also warned of harsh tariffs over India's Russian oil imports—an action New Delhi called 'unjustified.'
Earnings growth for Indian companies has been in single digits for five consecutive quarters, below the 15%–25% growth seen between 2020–21 and 2023–24, which fueled a 160% surge in the Nifty 50 index.
Since the start of the fiscal year 2025, the Nifty has risen 10%.
'It's clear that the earnings momentum has stalled, with slower credit growth dragging down performance of financials. However, this isn't just a sectoral story—it reflects broader weakness in nominal growth,' Avinash Gorakshakar, director of research at Profitmart Securities said.
Castrol India's second-quarter profit rises on higher demand
Nominal GDP growth, which includes inflation, and is more relevant to corporate profitability, is seen staying below 10% for the third straight year.
'A real revival may take shape only in the second half of FY2026—if credit growth revives, private capex kicks in, and a good monsoon boosts rural demand. Until then, the benchmarks are likely to remain rangebound,' said Gorakshakar.
Banks — the heaviest sector in the Nifty — delivered mixed results in the June quarter.
Lenders reported lower margins following steep policy interest rate cuts and as bad loans in segments such as consumer loans, credit cards and microfinance started to rise.
IT firms, the second-largest sector in the Nifty, also saw a subdued quarter amid persistent demand weakness from the U.S., a key market.
There were a few bright spots in the June-quarter earnings, with auto, cement, and select infrastructure companies meeting or beating expectations.
Analysts lowered their full-year profit forecasts for more companies, though the number of downgrades was lower than in the previous three quarters.
'The earnings engine is clearly sputtering. Margin strain in banks, tepid global IT demand, and weak nominal growth have stalled profit momentum,' said Samrat Dasgupta, chief executive of Esquire Capital Investment Advisors.
'Until credit and consumption revive meaningfully, markets may find little earnings firepower to break higher.'
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