India Inc.’s December quarter (Q3FY26) earnings surprised positively on some counts. For instance, on an aggregate basis, the Nifty 500 index companies delivered strong double-digit profit-after-tax growth of 19% in Q3 (adjusted for extraordinary items), the highest in eight quarters, showed an analysis by Motilal Oswal Financial Services. The top 10 incremental profit contributors, primarily from the oil & gas, metals, financial, and telecom sectors, together contributed around 50% of the incremental year-on-year earnings growth.
Aggregate sales for the Nifty 500 universe grew 11%, the highest in 11 quarters, mainly led by the benefits of goods and services tax (GST) cuts flowing through select sectors. That coupled with recent monetary and fiscal measures by the Reserve Bank of India and the government have also lent some support to the overall macroeconomic environment.
While the pace of earnings cuts has moderated, an improvement in one quarter isn’t enough to rekindle earnings upgrades, given the lingering headwinds. “The FY27 consensus earnings-per-share estimates for the Nifty 50 were trimmed by 1% after the Q3FY26 results.
However, consensus is building on a steep earnings acceleration for FY27E—19% growth (versus 9-10% in FY25/26),” said Prateek Parekh, executive director, institutional equities, Nuvama Wealth Management. The consensus expectations of a revival still run high, posing downside risks, he cautioned, adding that artificial intelligence-related disruption poses risks to wages and thus, to that extent, on overall consumption itself.
Limited upside?
Weak earnings growth prospects amid expensive valuations could prevent large upsides in key Indian benchmark indices. India lagged in 2025, with the MSCI India index fetching 9.5% returns versus double-digit returns by MSCI Asia-Ex Japan and MSCI Emerging Markets. The trend has continued in 2026 so far, with MSCI India down around 2% while the other two have delivered positive returns. Still, India trades at a premium one-year forward price-to-earnings ratio of around 19, showed Bloomberg data.
A part of India’s underperformance is also linked to relentless selling of equities by foreign portfolio investors, even as domestic institutional investors have been net buyers. Amid evolving global trade dynamics and geopolitical tensions, the recent India-EU trade deal has helped revive confidence among foreign investors. But the long-pending US-India trade negotiation is seen as a deciding factor for the trajectory of foreign fund flows. For now, uncertainty on tariffs continues after the US Supreme Court struck down Donald Trump’s reciprocal tariffs.
