India’s economy is under strain as rising US tariffs and weak domestic earnings growth weigh on market sentiment. Once the most-favored equity market in Asia, India has now slipped to the least-preferred, according to Bank of America’s fund manager survey.
Earnings Downgrades
Indian companies have experienced the sharpest earnings downgrades in Asia, with forecasts cut by 1.2%. This reflects a challenging environment shaped by global trade frictions, particularly US tariffs on exports.
US Tariff Impact
Although only 9% of Nifty 50 firms’ revenues are US-linked, a potential 50% tariff on exports could reduce India’s GDP growth by 1 percentage point, hitting employment-heavy sectors like textiles especially hard.
Domestic Measures
To counter slowing growth, Prime Minister Narendra Modi has announced tax reforms aimed at spurring domestic consumption. These steps come as corporate India struggles with persistently low earnings growth.
Weak Earnings Growth
Corporate earnings have been stuck in single digits for five consecutive quarters, a steep decline compared to the robust 15%–25% growth rates seen in 2020–2021 and 2023–2024.
Sector-Specific Cuts
Following recent quarterly reports, earnings downgrades have extended to key industries such as:
- Automobiles
- Capital goods
- Food & beverages
- Consumer durables
Each of these sectors saw earnings estimates cut by 1% or more.
Future Outlook
India’s real GDP growth, which averaged 8.8% between FY2022–FY2024, is projected to slow to 6.8% annually over the next three years. Combined with sluggish earnings and external trade pressures, this slowdown raises concerns over the pace of economic recovery.
Key Data Table
| Category | Key Insights |
|---|---|
| Earnings Downgrades | Forecasts cut by 1.2%, steepest in Asia |
| US Exposure | Only 9% of Nifty 50 revenues from US |
| Tariff Impact | Potential 50% tariff may cut GDP growth by 1 percentage point |
| GDP Growth | Avg. 8.8% (FY22–FY24) → projected 6.8% (next 3 years) |
| Earnings Growth | Single-digit growth for 5 quarters, vs. 15%–25% in past years |
| Sector Cuts | Automobiles, Capital goods, Food & beverages, Consumer durables (≥1% cuts) |
| Market Sentiment | India dropped from most-favored to least-preferred Asian equity market |
| Govt. Measures | Tax reforms to boost consumption |
| Recovery Concerns | Weak earnings landscape, sluggish recovery pace |
Conclusion
India’s economy is navigating a tough transition: external trade shocks, weakening corporate earnings, and slowing GDP growth are reshaping investor sentiment. While government reforms may cushion domestic demand, the outlook hinges on how India adapts to global trade headwinds and sector-specific pressures.
Glottis Limited 
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