Sensex EPS growth falls to its lowest level in nearly five years
BSE Sensex EPS growth slows to 1.3%, the weakest in five years, highlighting a sharp earnings slowdown even as valuations stay elevated
 "Sensex EPS growth falls to its lowest level in nearly five years")
The current earnings season has been the weakest for the BSE Sensex companies in the past five years. The benchmark index trailing earnings per share (EPS) of the BSE Sensex was up just 1.3 per cent year-on-year (Y-o-Y) so far — the lowest since April 2021 — when the underlying EPS had contracted due to Covid-19 lockdown.
The benchmark index trailing earnings per share inched up to ₹3,637.9 on Tuesday from ₹3,591.7 at the end of February 2025. However, the current EPS was nearly 0.8 per cent lower than the index EPS of ₹3,665.8 at the end of November 2025, after the second quarter 2025-2026 (Q2FY26) earnings season.
This signalled a sharp reversal in index companies’ earnings from double-digit growth till a year back. For comparison, the index EPS was up 22.6 per cent Y-o-Y in February 2025 and it had grown at 16.1 per cent, on average, in the past five years.
The index underlying EPS closely tracks the combined trailing 12- month net profit of India’s top 30 companies that are part of the index. Eight out of the 30 index companies have declared their quarterly results for October-December period (Q3FY26) and the overall numbers were weak. The combined net profit of these eight index companies had declined 0.4 per cent Y-o-Y in Q3FY26. The combined net profit of these companies, on a trailing 12-month basis, was up 7.7 per cent Y-o-Y in Q3FY26. However, excluding Reliance Industries — which had made a large one-time profit from the sale of its minority stake in Asian Paints in Q1FY26 — the combined trailing 12-month net profit of other seven index companies was up just 3.6 per cent in Q3FY26.
According to analysts, this had created a wedge between index underlying earnings, its valuation, and the index movement. In the past one-year, the index value and the valuation ratio had increased even as the earnings momentum had weakened.
The index underlying EPS is calculated indirectly using its reported trailing price-to-earnings multiple and index value at the end of the day. The index closed with a trailing price-to-earnings multiple of 22.59 on Tuesday, lowest in the past four months, but nearly 11 per cent higher than 20.58 at the end of February 2025. The index was up 12.23 per cent during the period and settled at 82,180.5 on Tuesday.
Similarly, the index price-to-book value ratio was up nearly 17 per cent in the past 12 months from 3.76 at the end of February 2025, to 4.41 on January 21, 2026, making the Indian equity market even more expensive.
According to analysts, a combination of weak earnings growth and relatively high valuations was contributing to a sell-off by foreign portfolio investors (FPI) leading to a decline in stock prices. “The continued sell-off by FPIs in Indian equities, and the resulting decline in the market, can be directly linked to poor earnings growth. Besides, the Indian equity market remains one of the most expensive globally, further reducing the incentive for FPIs to stay invested in Indian equities,” says Dhananjay Sinha, co-head research and equity strategy at Systematix Institutional Equity.
FPIs have been persistent sellers in the current results season and have withdrawn $2.86 billion from Indian equities in January, so far. The sell-off came on the back of FPIs withdrawing $18.8 billion from Indian equities on a net basis during the calendar year 2025.
According to Sinha, the earnings outlook for Indian companies remained challenging given a combination of weak demand in the domestic sector and upheaval in the international trade triggered by US trade wars. He expected the combined earnings of India’s top-listed companies to grow at a compound annual growth rate of just 6 per cent over the next three years.
Low single-digit earnings growth would not be sufficient to attract FPI inflows at a time when yields on sovereign bonds in most major economies such as the US, Western Europe, and Japan were on the rise. This, in turn, may keep equity prices under pressure, he said. Rupee slips to fresh low vs dollar; India mcap below $5 trn
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