India Corporate Earnings Miss Masks Deeper Economic Concerns

Indian corporates are facing their worst earnings disappointment since March 2020, with 48% of NSE 100 companies missing estimates by more than 4% in Q2, yet management commentary remains notably disconnected from this reality.

The divergence is striking: Despite the Nifty 50 recording its steepest monthly decline since the COVID crash and H1 FY25 earnings growth being essentially flat, consensus still projects double-digit growth for the full year. This implies an ambitious second-half recovery that appears increasingly difficult to achieve given broader economic indicators.

The weakness extends beyond corporate earnings. Industrial production contracted in August for the first time in more than a year, while government capital expenditure has reached only 37% of its full-year target – the lowest level since 2010. Urban consumption, traditionally India’s growth engine, shows clear signs of slowdown.

Yet corporate executives are largely attributing Q2’s weakness to temporary factors like heavy monsoons and pre-election slowdown, while maintaining optimistic Q3 forecasts. This narrative of transitory challenges contrasts sharply with deteriorating economic fundamentals. Even the Reserve Bank of India has maintained a relatively sanguine stance, though some monetary policy committee members have begun voicing concerns about weakening conditions.

The disconnect between market reality and institutional messaging suggests further earnings downgrades may be likely, potentially forcing a more significant policy response in coming months. The persistence of double-digit full-year growth forecasts, despite clear evidence of economic deceleration, points to what Bernstein terms a “recipe for more downward surprises” – setting up a potential reality check for both corporate projections and market valuations.