India’s corporate earnings growth, which has been declining since Q1, is expected to improve in Q4, driven by government spending and lower inflation. Additionally, a preliminary trade agreement between India and the U.S. aims to boost bilateral trade from $200 billion to $500 billion by 2030. These developments are fueling optimism in the Indian stock market.
India’s corporate earnings growth has faced a slowdown since Q1 but is expected to gain momentum in Q4, driven by increased government spending and declining inflation. Additionally, a preliminary trade agreement between India and the United States aims to boost bilateral trade from $200 billion to $500 billion by 2030, further strengthening investor confidence.
India’s corporate earnings, which had a 22.5% growth in FY24, saw a sharp decline in Q1 and Q2, with Nifty50 index’s Adjusted PAT (Profit After Tax) growth standing at 6.7% and 6.5%, respectively. However, Q3 has shown some recovery, with revenue and profitability improving. Data from the Nifty500 index indicates a 5% increase in total sales, a 14% rise in EBITDA (operating profit), and a 10% increase in PAT.
Economic data and corporate management insights suggest that Q4 will continue this positive trajectory. Initial estimates predict PAT growth in the range of 10-12%, supported by significant government expenditure, rising demand in both urban and rural markets, and lower inflation, reducing corporate costs.
Despite a 16% decline in the broader Indian stock market, valuations remain high. The one-year forward price-to-earnings (P/E) ratio stands at 19x, significantly higher than the average EPS (earnings per share) growth rate of 7-8% over the past nine months. While Q3 earnings showed momentum, results were slightly below expectations, mainly due to a 55% downgrade in earnings among Nifty50 companies.
If corporate earnings recover towards 15% growth in FY26, which aligns with India’s historical long-term average, the domestic stock market is expected to witness renewed traction between April and September 2025. Consensus estimates currently place India’s EPS growth at 12-13%, supported by a low base effect from FY25 and strengthening domestic demand.
India-US Trade Deal to Expand Bilateral Trade
Another key development impacting India’s economy is a preliminary trade agreement with the United States. This deal aims to expand total trade between the two nations to $500 billion by 2030, with finalization expected within the next two to three quarters. The new trade pact includes tariff adjustments, with India reducing duties on U.S. imports in sectors such as auto, auto parts, aircraft, energy storage, precious metals, and EV batteries. Additionally, India plans to increase crude oil and defense imports from the U.S. to address the trade surplus deficit.
The tariffs announced by U.S. President Donald Trump are expected to take effect in March-April, but analysts believe they will have a minimal impact on India. While the proposed 25% tariff on metals may influence India if China redirects its exports, the impact on the Indian economy is expected to be limited. Similarly, the tariff on pharmaceuticals, a sector where India supplies 50% of U.S. generic drugs, is unlikely to cause major disruptions, given the essential nature of these products.
The ongoing global concern over reciprocal tariffs and potential trade slowdowns remains a risk. However, analysts believe that a strong India-US trade pact can help shield the Indian economy from the adverse effects of global trade tensions. India’s ability to navigate the proposed tariff war strategically could offer the country an advantage in the evolving global trade landscape.
With corporate earnings showing signs of recovery and a promising trade deal on the horizon, investor confidence in the Indian stock market is expected to strengthen in the coming months.
