Indian Firms Face Earnings Headwinds

Listed Indian companies have reported another quarter of unimpressive profits during the April-June period, continuing a period of sluggishness that started the previous year and has put pressure on key stock market indices.

The Indian economy is projected to experience substantial growth at 6.5% in the current fiscal year, outpacing many global economies, and inflation remains contained. However, various sectors, including banking and IT services, are encountering profit challenges due to soft spots in both domestic and international demand.

According to Motilal Oswal Financial Services, the combined profit growth of 38 Nifty 50 companies that have disclosed their results is a mere 7.5%. Jefferies noted that full-year earnings per share projections for 113 companies within the MSCI India index have been adjusted downward by 1.7%, with growth now anticipated to be around 8%.

The imposition of a 25% tariff on imports from India could further darken the outlook for export-focused sectors. Furthermore, there have been warnings about potential stringent tariffs related to India’s oil imports from Russia, a move that New Delhi has deemed “unjustified.”

For the past five quarters, Indian companies have seen single-digit earnings growth, falling short of the 15%–25% expansion witnessed between 2020-21 and 2023-24. This prior growth had fueled a substantial 160% increase in the Nifty 50 index.

The Nifty has seen a 10% increase since the start of fiscal year 2025.

Avinash Gorakshakar, Director of Research at Profitmart Securities, stated, “The earnings momentum has clearly slowed, with reduced credit expansion impacting the performance of financial institutions. This is not limited to one sector, as it highlights a general weakening in nominal growth.”

Castrol India’s second-quarter earnings increased due to increased sales.

Nominal GDP growth, which accounts for inflation and is more indicative of corporate profitability, is expected to remain below 10% for the third consecutive year.

Gorakshakar added, “A significant rebound might only occur in the latter half of FY2026, assuming credit growth recovers, private capital expenditure increases, and favorable monsoon conditions boost rural demand. Until then, the benchmarks will likely trade within a limited range.”

Banks, which hold the largest weight in the Nifty, presented varied results in the June quarter.

Lenders reported tighter margins because of large policy interest rate cuts, and also from rising non-performing loans in areas such as consumer loans, credit cards, and microfinance.

IT companies, the second-largest sector in the Nifty, also experienced a subdued quarter due to sustained weak demand from the U.S., a key market.

There were some positive aspects in the June-quarter earnings, with automotive, cement, and specific infrastructure companies meeting or outperforming expectations.

Analysts have revised downward their full-year profit projections for several companies, although the number of downgrades has decreased compared to the previous three quarters.

Samrat Dasgupta, Chief Executive of Esquire Capital Investment Advisors, commented, “The earnings performance is clearly struggling. Constrained bank margins, moderate global IT demand, and slow nominal growth have stalled profit momentum.”

Dasgupta concluded, “Until there is a substantial revival in credit and consumption, markets might struggle to gain sufficient earnings momentum to move significantly higher.”