The last Samvat performance was subdued, as FIIs remained largely absent from India in 2025, while slowing earnings growth and unexpected tariff pressures weighed on sentiment. FIIs, who have been net sellers in India since September 2024, continued to allocate capital to other emerging markets, citing India’s high valuation amid contracting earnings growth. India EPS, which had grown by +20% in FY24, dropped to 5% in FY25. And the earnings growth outlook remains subdued in the initial period of FY26.
Actual earnings performance in Q1FY26 was better on a QoQ basis but still muted on a YoY basis, which did not qualify for a good performance for India, which was quoted at an average 80% premium valuation to emerging markets. About 10% earnings growth in Q1 and the forecast of around 5-6% in Q2 are subdued compared to the average 15% in the last 5 years.
During the last Samvat, India’s market trended negatively in the first half and gained traction in the second half on hopes of FY26 earnings recovery, which were subsequently dampened by the unforeseen trade tensions between India and the US.
However, earnings growth is expected to improve from Q3 onwards, and the market expects 12-13% CAGR growth during FY25-27. This growth is forecast to be driven by a rise in domestic demand.
Samvat outlook
The upcoming Samvat is likely to perform differently, supported by clear and proactive measures from the government and the RBI. The government has initiated a significant fiscal stimulus aimed at empowering middle and upper-middle-class households. This began with the 2025 budget, which introduced tax incentives amounting to ₹1 lakh crore. In September, this was further reinforced through substantial GST rate cuts, delivering an additional annual benefit of ₹50,000 crore. Coupled with plans to raise infrastructure spending to 3.1% of GDP ( ₹11.21 lakh crore), these initiatives are expected to boost domestic demand. The real impact of these measures is anticipated to be felt from the second half of FY26 (H2FY26).
Other than these, a consumption-driven demand is expected to be accelerated with a drop in national inflation (forecast 2.6% for FY26 from an average 5% in FY24 to FY25), a good monsoon season and consistent growth of GDP. Additionally, the financial sector-based reforms initiated by the RBI will revive credit growth, which has stalled at sub-10%. Steps like rate cuts (100bps to date and 25 bps expected by December) and measures taken to ease doing business between banks and NBFCs will ensure better financial growth. Collectively, these factors are likely to increase disposable income and money supply, creating a multiplier effect that further supports domestic demand.
Consequently, investors are expected to focus on domestic sustainability while avoiding areas vulnerable to external demand. The unexpected US tariff is currently dampening views on export-oriented sectors like IT, Pharma, Textile and Industrials. However, a contrarian opportunity exists in large-cap IT stocks, which are currently trading at historically discounted valuations. These companies could offer significant long-term upside, as anticipated Federal Reserve rate cuts may stimulate higher US IT spending.
(The author is Head of Research, Geojit Investments Ltd)
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
