Indian earnings turn a corner as cooling inflation, tax cuts, lift purchasing power

India's corporate earnings are staging their strongest recovery in over a year, with brokerages turning upbeat on profit growth for the second half as they expect a broader rebound in consumption.

Cooling inflation, massive tax cuts on consumer goods and monetary policy support are helping revive overall demand, while early festive-season data points to a pick-up in discretionary purchases.

Those trends, along with stable tax collections and firmer credit growth, have kept Indian markets grinding higher in recent weeks and given companies a clearer runway heading into the second half of the fiscal year.


"Overall, we anticipate accelerated double-digit growth in the second half of fiscal year 2026 and in fiscal year 2027," said J.P. Morgan's Rajiv Batra and Rushit Mehta.


India's retail inflation slumped to a record low of 0.25% in October, driven by sharp fall in food prices and tax cuts on consumer goods, setting the stage for a rate cut in December.

MORE COMPANIES SEE PROFIT GROWTH

Profit growth for BSE500 companies accelerated to 16.6% in the September quarter, up from 10.7% in June and a small contraction a year earlier, according to Emkay Global.

Oil marketing companies, telecom, metals, technology, non-bank lenders, cement and capital goods drove earnings, while autos, weighed down by Tata Motors, and large banks tempered aggregate performance.

Five heavyweights - Bharti Airtel, Tata Steel, HDFC Bank, Reliance Industries and TCS - accounted for most Nifty 50 profit growth, Motilal Oswal's analysis of quarterly results showed.

For MSCI India constituents, revenue and profit rose 8% and 9% year-on-year, with nearly half beating estimates, signaling widening breadth, J.P. Morgan's Rajiv Batra and Rushit Mehta said.

The Nifty 50 trades just 1% below its record high, supported by GST cuts, improving earnings visibility and valuations holding near 21.2x forward P/E.

About 40% of Nifty companies beat estimates and 28% missed expectations in the second quarter, JM Financial said.

Boosted by improved earnings, the mid-caps hit a record on Nov. 17, while small-caps lagged 7% below their peak, amid higher earnings misses.

Jefferies said early festive demand pushed revenue growth of companies under its coverage to a 10-quarter high, while lending financials showed a clear rebound.