As the Q4FY25 corporate earnings season draws to a close, market analysts remain cautious about the outlook for FY26, warning of continued weakness in forward earnings. The consensus among many equity experts is that earnings downgrades are likely to outpace upgrades in the coming financial year, dampening hopes for a robust market revival driven by corporate performance. This cautious stance follows a mixed set of Q4FY25 results, which failed to provide a decisive positive catalyst for equity markets.
Subdued Earnings Growth Expected for FY26 Amid Mixed Q4 Results
The fourth-quarter results for FY25 revealed a patchwork of performances across sectors, with no clear upward momentum to inspire broad optimism. Several leading brokerage firms have already revised down their earnings forecasts for FY26, signaling concerns over sustained demand pressures and macroeconomic challenges. For instance, Nuvama Securities highlighted that FY26 estimated earnings per share (EPS) have been trimmed by 2%, with notable cuts across consumer discretionary, automobile, and industrial sectors. Commodity companies, however, showed some stability amid these downgrades.
The lack of positive triggers beyond earnings has placed significant emphasis on corporate results as a potential driver for the equity markets. Yet, the prevailing sentiment is that earnings growth may remain muted, limiting its capacity to catalyze a strong market upswing. This cautious outlook underscores the fragility of the current market environment and the potential for further downside risks in FY26 earnings.
Highlights:
Q4FY25 results were mixed, failing to generate strong market optimism.
Nuvama cut FY26 EPS estimates by 2%, with consumer, auto, and industrial sectors most affected.
Commodity sectors showed earnings stabilization despite broader downgrades.
Earnings Downgrades Surpassing Upgrades Raise Market Concerns
According to market watchers, the frequency and magnitude of earnings downgrades have increased, raising concerns over corporate profitability in FY26. Motilal Oswal Financial Services (MOFSL) noted that downgrades continue to outnumber upgrades, reflecting ongoing challenges in forward earnings expectations. Their analysis shows a 3% cut in earnings for the BSE 500 index for FY26, with cumulative EPS reductions of approximately 10% over the past year, especially pronounced in small and midcap stocks.
This trend signals a cautious market stance, as persistent demand headwinds and inflationary pressures weigh on companies’ growth prospects. MOFSL highlighted that the Nifty is still forecasted to deliver mid-teen earnings growth over the next two years, but warned that the pace of earnings cuts is worrisome and merits close monitoring.
Highlights:
Downgrades have outpaced earnings upgrades in FY26 forecasts.
BSE 500 EPS estimates trimmed by 3% for FY26, with a 10% cut over the past year.
Small and midcap stocks have experienced even sharper earnings reductions.
Broader Market Impact and Sectoral Earnings Revisions
JM Financial, another key market player, echoed similar concerns, revising its FY26 and FY27 EPS estimates downward despite Q4FY25 earnings growth for Nifty50 surpassing expectations. While the Q4FY25 Nifty50 EPS grew by 4.9%, beating forecasts of a 2.2% decline, JM Financial lowered its FY26 EPS estimate by 5.3% and FY27 EPS by 5.9%. This adjustment translates to a revised EPS growth projection of 12.0% for FY26, down from 16.4%, and 14.3% for FY27, down from 15.1%.
Notably, the sectors experiencing the most significant cuts include automobiles, cement, oil and gas, and non-banking financial companies (NBFCs). These sectors face unique challenges ranging from raw material cost pressures and weak demand to regulatory hurdles and tightening credit conditions.
Highlights:
JM Financial cut FY26 EPS forecasts by 5.3% and FY27 by 5.9%.
Revised earnings growth for FY26 is 12.0%, down from 16.4%.
Automobiles, cement, oil & gas, and NBFC sectors faced the largest downgrades.
Market Stuck Between Valuation Pressures and Growth Concerns
Kotak Institutional Equities recently underscored the challenging environment confronting Indian markets, describing it as caught between high valuations, domestic growth concerns, and global macroeconomic uncertainties. The brokerage’s strategy note stressed that while hopes for an economic and earnings recovery persist, these are tempered by stiff realities such as inflationary pressures, geopolitical tensions, and monetary policy tightening globally.
The confluence of these factors creates a complex backdrop for investors, complicating portfolio decisions and increasing the importance of selective stock picking and risk management. Investors are advised to remain vigilant, focusing on high-conviction stocks with strong fundamentals while maintaining liquidity to capitalize on potential market corrections.
Highlights:
Indian markets face pressures from high valuations, slow domestic growth, and global macro risks.
Recovery hopes exist but are counterbalanced by inflation, geopolitics, and monetary tightening.
Emphasis on selective investing and risk management amid uncertain earnings trajectory.
The evolving earnings landscape for FY26 signals a period of heightened caution for investors, with corporate earnings expected to remain under pressure. Market participants will be closely watching upcoming economic data, corporate guidance, and global developments to gauge the trajectory of India Inc’s profitability and its impact on equity markets.
