Analysts have lowered their forecasts as steep U.S. tariffs increase growth risks, even if proposed domestic tax cuts help mitigate the impact. Indian companies have experienced the steepest earnings downgrades in Asia.
The largest cut in Asia in the last two weeks has been a 1.2% reduction in the forward 12-month earnings estimates for India's large and mid-cap companies, according to LSEG IBES data.
Key Highlights
- India registers Asia’s sharpest earnings downgrade as analysts cut 12-month estimates 1.2%, citing tariff threats.
- Massive 50% US tariffs could reduce India’s GDP by 1% and jeopardize labor-intensive exports.
The reductions come after an unimpressive season of quarterly earnings reports, which prolongs a period of listed companies' weakness that began last year and has harmed benchmark equity indexes.
The tariff hike to as high as 50% on exports to the largest economy in the world poses a threat to economic growth, even though the majority of India's economy is domestic and companies that are listed on the Nifty 50 index only receive 9% of their revenue from the United States.
According to MUFG's analysis, a sustained 50% tariff could eventually reduce India's GDP growth by 1%, with employment-sensitive industries like textiles suffering the most.
In the midst of a trade dispute with Washington, Indian Prime Minister Narendra Modi recently announced extensive tax reforms aimed at boosting domestic consumption.
According to Raisah Rasid, global market strategist at J.P. Morgan Asset Management, "it's a little bit of an interesting time given what's happened with the tariffs that have been imposed on India."
"We could potentially see the tariff triggering a broad valuation re-rating downwards and make some of the domestic oriented stocks attractive," she said, adding that valuations are still high.
For the past five quarters, Indian companies' earnings growth has been in the single digits, falling short of the 15%–25% growth observed between 2020–21 and 2023–24.
According to the data, the sectors with the biggest declines in earnings estimates, each down by at least 1%, were capital goods, food and beverage, consumer durables, and automobiles and components. These forecasts were made after the April-June earnings announcements.
Also Read: Goldman Sachs Cuts India's Growth Forecast Amid U.S. Tariff Worries
It is also anticipated that the government's plans to reduce consumption taxes will accelerate the growth of the nation's GDP. Standard Chartered economists predict a 0.35–0.45% increase in the fiscal year that ends in March 2027.
India had the highest real GDP growth in Asia-Pacific, averaging 8.8% between fiscal 2022 and 2024. Over the following three years, it is anticipated to grow at a rate of 6.8% per year.
In just two months, India's Asian equity market has gone from being the most preferred to the least preferred, according to the most recent Bank of America fund manager survey.
Rajat Agarwal, Asia equity strategist at Societe Generale, stated, "The pace of recovery remains sluggish in 2025, as indicated by both the economic growth parameters and corporate earnings, following disappointing earnings growth of only 6% in 2024."
