BNP Paribas Flags Potential Cuts to FY26 Earnings Estimates
BNP Paribas’ Head of India Equity Research, Kunal Vora, has indicated that India Inc’s earnings growth projections for FY26 are likely to be revised downward. According to Vora, the current consensus earnings growth estimate of 14% for FY26, as per Bloomberg data, appears overly optimistic and may not fully reflect ongoing sector-specific challenges across the market. BNP Paribas now projects a more conservative earnings growth range of 10-11% for Nifty companies, signaling a reality check ahead for investors.
Vora noted, “We always start with high expectations and then revise lower,” reflecting the pattern observed in FY25, which saw earnings growth fall short of initial forecasts. This trend is expected to continue into FY26, albeit with some incremental improvement.
Highlights:
BNP Paribas expects FY26 earnings growth of 10-11% vs. Bloomberg consensus of 14%.
Early optimism in earnings may not capture sectoral headwinds adequately.
Pattern of downward revisions follows FY25’s earnings disappointment.
FY25 Earnings Growth Disappoints, Consumption Sector Hits Two-Decade Low
The FY25 earnings season underperformed relative to expectations, prompting significant downgrades during the year. Nifty earnings growth forecasts were cut from double digits at the start of the year to approximately 6-7% by FY25 end. This shortfall was driven largely by weak performances across several key sectors.
Consumer staples faced a particularly difficult year, described by Vora as “probably the worst in 20 years,” with revenue growth stagnating in low single digits and EBITDA growth around 1%. The consumption slowdown weighed heavily on broader market sentiment. Similarly, the IT services sector failed to recover as anticipated, with demand remaining uncertain. Financials delivered mixed results, with earnings expectations being trimmed progressively through the year.
Highlights:
FY25 Nifty earnings growth downgraded to 6-7% from initial double-digit estimates.
Consumer staples saw weakest performance in two decades.
IT services and financial sectors underperformed or showed uneven results.
Signs of Macroeconomic Improvement Temper Outlook for FY26
Despite the subdued earnings environment, some positive factors are emerging to support a modest earnings rebound in FY26. Easing crude oil prices, the prospect of an interest rate cutting cycle by the RBI, and early signs of consumption recovery provide a more favourable macroeconomic backdrop.
Vora forecasts India’s real GDP growth at around 6.5% and nominal GDP growth near 9% for FY26. Since corporate earnings tend to grow slightly ahead of nominal GDP, BNP Paribas’ earnings growth estimate of 10-11% aligns with these macro projections.
However, Vora cautions that the outlook remains uncertain, particularly due to the ongoing pressures in the IT sector and global trade disruptions. The earnings recovery could accelerate if the US enters a rate-cutting cycle and global trade normalizes, but such developments are yet to materialize.
Highlights:
Cooling crude prices and rate cut expectations support earnings recovery.
GDP growth projected at 6.5% real, 9% nominal for FY26.
Earnings growth forecast aligns with macro fundamentals but remains tentative.
Sectoral Divergence: Optimism in Rural Consumption and Financials
While some sectors continue to struggle, others show promising signs of recovery. Rural consumption indicators have improved, and management commentary from consumer staples companies is increasingly upbeat, with expectations of a return to high single-digit revenue growth and easing margin pressures.
In financials, Vora anticipates a bifurcated earnings performance in FY26. The first half of the year may see earnings under pressure if interest rates decline further, but a rebound is expected in the second half. The sector could experience a stronger FY27, driven by improving credit demand and stabilized margins.
Highlights:
Rural consumption gains boost consumer staples outlook.
Financial sector earnings may face short-term pressure, with recovery in H2 FY26.
FY27 expected to be stronger for financial services.
IT Sector Remains Under Pressure Amid Demand Uncertainty
The IT services sector continues to face headwinds, with cautious management guidance and ongoing uncertainty in global demand. This sector’s subdued outlook is a key factor weighing on aggregate earnings forecasts. Vora noted that while normalization in global trade and a US rate-cut cycle could improve the IT sector’s prospects, these conditions are not yet in place.
Highlights:
IT services sector earnings remain pressured amid demand uncertainties.
Management commentary remains cautious.
Sector outlook dependent on global trade and US monetary policy developments.
