Pause in the comeback: Nifty 50's earnings slow again, shows data

After a strong run to 20.4% last year, Q1FY26 delivers a much quieter 7.4% EPS rise - a reminder that recoveries can wobble

Earnings momentum for Nifty 50 companies decelerated sharply in the first quarter (Q1) of 2025–26 (FY26) after a weak showing by Corporate India. The benchmark index’s underlying earnings per share (EPS) rose just 7.4 per cent year-on-year (Y-o-Y) — the slowest pace in more than four years.

 

The slowdown is worse than the previous earnings dip, when EPS grew 8.8 per cent on average during July–September 2023. That downturn was followed by a recovery, which now appears to be stalling again. For comparison, EPS had grown 20.4 per cent Y-o-Y in September 2024 and averaged 18 per cent Y-o-Y growth over the past two years.

 

Currently, the trailing 12-month EPS for the index stands at ₹1,135.3, up from ₹1,057.1 at the end of September 2024 and ₹1,081.2 at the end of December 2024.

 

This pace is slower than both the long-term and medium-term trend. Over the past 20 years, EPS has grown at an average of 12.6 per cent Y-o-Y, while the 10-year average stands at 10.8 per cent.

 

This analysis is based on the Nifty 50’s trailing 12-month price-to-earnings (P/E) multiple and its underlying EPS, calculated from the index’s closing price at the end of each month. A three-month moving average of P/E and EPS has been used to reconcile with the quarterly earnings cycle. The index EPS reflects the combined net profit of its 50 constituent companies.

 

Valuations, meanwhile, have seen only a mild correction from the highs of 2023 and 2024. The index currently trades at a trailing P/E multiple of around 21.7x, down from an average of 23.1x in 2024 and 22x in 2023. Valuations remain above the post-pandemic low of about 20x seen at the end of February this year. 

 

The current P/E multiple is higher than the long-term average of 20x since 2005 but lower than the 10-year and five-year averages of 22.9x and 23.9x, respectively.

 

Analysts credit the resilience in valuations to investors’ optimism about future earnings despite the slowdown. “EPS growth for the Nifty 50 is projected to rise by 9 per cent in FY26, aided by an expected improvement in the macro environment owing to stimulative fiscal and monetary measures. While the Indian equity market has been volatile over the past two months due to tariff jitters, we believe improved earnings prospects and reasonable valuations should enable the market to achieve modest gains,” wrote analysts at Motilal Oswal Financial Services in their Q1FY26 earnings review.

 

The combination of slowing earnings and elevated valuations has pushed the price-to-earnings growth (PEG) ratio sharply higher. It now stands near 3x — the highest in 52 months — compared with 1.2x at the end of December 2024 and 1.16x in September 2024.

 

The PEG ratio, calculated by dividing the trailing P/E by EPS growth, indicates how much investors are willing to pay for earnings growth. Over the past 20 years, its median value has been 1.19x, suggesting valuations have historically tracked earnings more closely.

 

Some analysts warn this points to a disconnect between fundamentals and market pricing. “The Indian market continues to be largely disconnected from fundamentals, with high valuations across sectors supported by price-agnostic retail flows,” wrote Sanjeev Prasad, Anindya Bhowmik, and Sunita Baldawa of Kotak Institutional Equities (KIE) in their Q1FY26 review.

 

KIE analysts do not expect a meaningful acceleration in earnings despite a supportive macro backdrop. They project only a moderate pickup in consumption, driven by income-tax cuts in the FY26 Budget, recent goods and services tax reductions, and a 100-basis-point rate cut by the Reserve Bank of India in the first half of calendar year 2025. However, they foresee weaker investment demand due to slower central government capital expenditure and a likely pullback in household investment in housing. Exports are also expected to remain under pressure amid subdued consumer and corporate sentiment in major global economies.

 

This raises the prospect of further volatility and a potential pullback in the equity market.