Geopolitical risk, demand woes: Are India Inc's earnings at risk in H2CY25?

Earnings expectations 2025: According to analysts, the second half of calendar year 2025 (H2 CY25) could see an improved earnings environment, supported by lower credit costs and easing inflation

Stock Market Outlook India 2025: After fighting weak domestic demand and global growth challenges in the first half of calendar year 2025 (H1 CY25), India Inc is eyeing a modest recovery in earnings in the second half, driven, primarily, by inward (domestic) looking sectors.  

According to analysts, the second half of calendar year 2025 (H2 CY25) could see an improved earnings environment, supported by lower credit costs, coinciding with easing inflation, higher disposable income, and festive season.

 

“Reduction in income tax rates, along with interest rates and cash reserve ratio (CRR) by the Reserve Bank of India (RBI), has provided favourable policy support to the Indian economy. Improved systemic liquidity will, therefore, support corporate earnings growth in Q2 and Q3 of FY26 (H2 CY 25),” said Manish Jain, head of fund Management (PMS & Equity Advisory) at Centrum.

 

How India Inc earnings fared in H1-CY25?

 

In the first quarter of CY25 (Q1 CY25/Q4 FY25), net profit growth for BSE500 companies, excluding oil marketing companies (OMCs), grew by 10 per cent year-on-year (Y-o-Y), despite the persistent weakness in revenue, showed an analysis by Nuvama Institutional Equities.

 

The improvement, according to the brokerage, was owing to cost rationalisation (wage bill growth at 5 per cent) and a low base. While net profit growth of metals, telecom, chemicals, and cement companies accelerated, the pace of growth slowed down for PSU banks and industrials.

 

Market-cap wise, small and midcap companies posted a recovery in bottom-line growth in Q4-FY25, reversing their underperformance of 9M FY25.

 

While the April-June quarter (Q1 FY26/Q2 CY25) is yet to conclude, analysts at YES Securities expect some moderation in Nifty earnings during the period.

 

According to the brokerage’s preliminary estimates, the Nifty earnings per share (EPS) estimate for FY26 witnessed moderation in the months of April and May, suggesting a decline in Nifty50 earnings during the quarter, which may pull down the overall EPS growth for the financial year.

 

YES Securities pegs Nifty50 EPS at ₹1,164 for FY26, down from previous estimate of ₹1,177 estimated at the end of March 2025.

 

Overall, analysts expect external shocks, particularly the impact of global policy uncertainty due to US President Donald Trump’s flip-flop tariff policies, trade tensions, sluggish global growth, and geopolitical risks, to weigh on India Inc earnings in Q1-FY26.  ALSO READ | India Inc's Q4FY25 earnings beat Street estimates, but growth slows

 

Sectors to watch out for

 

In this backdrop, Nirav Karkera, Head-Research at Fisdom, believes domestic consumption plays could report better earnings ahead, while export-oriented sectors may lag.

 

“Upside surprises may be in store for domestic demand driven sectors, such as consumer staples, digital-first consumer brands, telecom, FMCG, and non-lending financial services players. Core manufacturing segments operating in capital goods, building materials, power and defence, too, offer opportunities but warrants high degree of selectivity,” he said.

 

On the contrary, segments like information technology (IT) services, and auto ancillaries -- where export exposure is relatively high -- may face prolonged earnings headwinds in the backdrop of ongoing global macro and geopolitical uncertainties, and muted demand environment.

 

Manish Jain of Centrum Ltd, too, expects consumer discretionary, NBFCs, industrials, metals, cement, defence, and telecom sectors to post better earnings growth while automobiles, technology may disappoint.

 

“The overall performance of corporates in the coming quarters will depend upon the unfolding of the global growth scenario and any external risks associated with geopolitical tensions, trade policy uncertainties, and commodity price shocks. While lower interest rates will be a supporting factor, domestic demand conditions will play a critical role in overall corporate performance in the coming quarters,” said a report by CareEdge Ratings.