India's Nifty Earnings Set for Robust Revival After FY25 Slowdown

The Indian equity market, as reflected by the Nifty, experienced a notable deceleration in earnings growth during Fiscal Year 2025 (FY25), registering a mere 0.8% increase. This slowdown followed a robust 24.5% growth in FY24 and an 11.0% rise in FY23. However, projections for FY26 and FY27 indicate a strong recovery, with earnings growth expected to accelerate to 9.5% and 15.4% respectively, signalling a positive shift in the corporate earnings cycle.

Reasons for the FY25 Slowdown The significant dip in corporate profitability during FY25 can be attributed to several factors. Profit growth, a major strength in the preceding fiscal years, softened considerably, with quarterly profit after tax (PAT) even showing negative growth in parts of FY25. Key contributors to this deceleration included rising costs, slower global demand, and uneven margins across sectors. Additionally, delays in Goods and Services Tax (GST) implementations played a role, as consumers and businesses postponed purchases awaiting rate cuts, shifting demand into later quarters. Some analysts also pointed to a cyclical slowdown in the Indian economy, with FY25 marking the slowest earnings growth for Nifty companies in five years post-COVID.

Anticipated Pickup in FY26 and FY27 Despite the challenging FY25, market experts and brokerage firms are largely optimistic about a strong earnings revival. The second half of FY25 is already showing signs of improvement, with expectations of double-digit growth. Looking ahead, Motilal Oswal projects Nifty earnings to grow by 8% in FY26 and 16% in FY27. Similarly, Kotak Institutional Equities anticipates Nifty 50 profit to increase by 10% in FY26 and 17% in FY27. JPMorgan also forecasts a full-year net profit growth of 14% for Nifty 50 companies compared to the 4% seen in FY25, driven by a material recovery in the latter half of 2026. Goldman Sachs further reinforces this positive outlook, projecting India to lead the Asia Pacific region with a 13% compounded annual growth rate (CAGR) in EPS over the next decade.

Key Drivers for Future Growth Several factors are expected to underpin this anticipated earnings acceleration:

• Supportive Policy Environment: Government initiatives such as GST reforms, income tax relief, repo rate cuts, and a reduction in the Cash Reserve Ratio (CRR) are expected to enhance liquidity and boost consumer sentiment.
• Resurgent Consumer Demand: Easing retail inflation, which cooled to an ultra-low 0.25% in October, is increasing purchasing power. The festive season has already seen strong traction, and both rural and urban consumption are gaining momentum.
• Sector-Specific Recoveries:
  • Banking Sector: Expected to be a significant driver, with improved margins due to the realignment of deposit costs. Financials are set for an earnings recovery in H2 FY26.
  • Manufacturing: Capex revival and ongoing policy reforms are poised to drive multi-year growth, positioning India as a key global manufacturing hub.
  • Other Promising Sectors: Pharma, chemicals, capital goods, and consumer discretionary sectors are also viewed favourably. Oil marketing, telecom, metals, and technology companies were key contributors to profit growth in the September quarter.
• Return of Foreign Portfolio Investor (FPI) Inflows: With FPIs being significantly underweight on India and valuation premiums normalising, there is considerable room for renewed foreign investment. An uptick in FPI inflows was observed by October 2025.
• Strong Domestic Fundamentals: India's robust GDP growth, sound fiscal position, and stable currency provide a solid macroeconomic backdrop. The domestic investor base is also maturing, contributing to market resilience.

The overall sentiment suggests that the Indian market is past the worst phase of its mid-cycle slowdown, with a stabilizing earnings cycle and strong fundamentals positioning it for sustained growth in the coming years.