India’s corporate landscape is currently navigating a complex period characterized by significant external pressures and a proactive domestic policy response. Recent data, compiled by Reuters, indicates a notable deceleration in earnings growth for Indian firms, further complicated by escalating trade tensions with the United States. This confluence of factors presents a critical test for the nation’s economic resilience and its attractiveness to global investors.
Key observations from the current economic climate include:
- A significant deceleration in earnings growth for Indian firms.
- Escalating trade tensions with the United States impacting corporate performance.
- A 1.2% reduction in forward 12-month earnings estimates, the sharpest cut across Asia.
- Subdued earnings performance for listed companies over the past five quarters.
- Substantial estimate revisions in sectors such as automobiles, capital goods, and consumer durables.
An analysis of forward 12-month earnings estimates for large and mid-cap Indian firms reveals a 1.2% reduction over the past two weeks, representing the sharpest cut across Asia, according to LSEG IBES data. This downturn extends a period of subdued performance for listed companies, which began last year and has adversely affected benchmark equity indexes. For the past five consecutive quarters, Indian companies have reported single-digit earnings growth, a significant contrast to the 15%–25% growth recorded between 2020–21 and 2023–24. Following the April-June earnings announcements, sectors including automobiles, capital goods, food and beverages, and consumer durables experienced the most substantial revisions, with estimates declining by 1% or more.
Economic Headwinds and Policy Responses
Although India’s economy is predominantly domestically driven, with Nifty 50 firms deriving only 9% of their revenue from the U.S., the recent imposition of tariffs, some reaching up to 50% on exports to the American market, poses a considerable risk to overall economic expansion. An analysis by MUFG suggests that sustained tariffs at the 50% level could potentially reduce India’s GDP growth by one percentage point over time. Employment-sensitive sectors, particularly textiles, are identified as most vulnerable to this trade friction.
In response to the intensifying trade conflict, Prime Minister Narendra Modi’s government has introduced comprehensive tax reforms aimed at stimulating domestic consumption and bolstering the economy. Economists at Standard Chartered project these measures could boost India’s GDP growth by 0.35 to 0.45 percentage points in the fiscal year ending March 2027. Despite these efforts, market sentiment appears to be shifting. Raisah Rasid, a global market strategist at J.P. Morgan Asset Management, highlights that elevated valuations could lead to a broad downward valuation re-rating, potentially making some domestically oriented stocks more attractive. This aligns with recent investor sentiment data: Bank of America’s latest fund manager survey indicates that India has transitioned from being the most-favoured to the least-preferred Asian equity market within a mere two months.
India’s economic performance has been robust, with real GDP growth averaging 8.8% between fiscal 2022 and 2024, positioning it as the highest in the Asia-Pacific region. The nation is projected to maintain a strong growth trajectory, with an anticipated annual growth rate of 6.8% over the next three years. However, the current challenges underscore the sensitivity of corporate earnings and market perception to global trade dynamics, even for a largely inward-looking economy.
Emily Carter has over eight years of experience covering global business trends. She specializes in technology startups, market innovations, and corporate strategy, turning complex developments into clear, actionable stories for our readers.