India sees Asia's sharpest earnings declines as U.S. tariffs loom

Indian firms have recorded the sharpest earnings downgrades in Asia, as analysts revise down forecasts amid increasing risks from steep U.S. tariffs, even as planned domestic tax reforms aim to provide some relief to growth prospects.According to data from LSEG IBES, forward 12-month earnings estimates for India’s large- and mid-cap firms have been cut by 1.2% over the past two weeks—the sharpest downgrade across Asia. The revisions follow a subdued earnings season that extended a trend of weakness seen since last year, weighing heavily on benchmark equity indices.
Although India’s economy is largely driven by domestic demand, with Nifty 50 firms earning just 9% of revenues from the U.S., the Biden administration’s move to raise tariffs on Indian exports by as much as 50% poses significant downside risks. Analysis by MUFG suggests that such sustained tariffs could shave off 1 percentage point from India’s GDP growth over time, particularly impacting employment-sensitive sectors like textiles.To counter external headwinds, Prime Minister Narendra Modi has announced sweeping tax reforms aimed at boosting household consumption. Economists at Standard Chartered estimate that lower consumption taxes could add 0.35 to 0.45 percentage points to GDP growth in the fiscal year ending March 2027.“It’s a little bit of an interesting time given what’s happened with the tariffs that have been imposed on India,” stated Raisah Rasid, global market strategist at JP Morgan Asset Management. While valuations remain elevated, she noted, tariffs could prompt a broad valuation re-rating and make domestic-oriented stocks more attractive.
Meanwhile,earnings growth for Indian corporates has remained stuck in single digits for five straight quarters, a stark contrast to the robust 15–25% growth recorded between 2020–21 and 2023–24. Following the April–June earnings season, forward income forecasts for automobiles and components, capital goods, food and beverages, and consumer durables sectors saw the deepest cuts, each down by about 1% or more,according to information.India’s real GDP growth averaged 8.8% between FY22 and FY24, the fastest in Asia-Pacific. However, growth is projected to moderate to 6.8% annually over the next three years. Reflecting this slowdown, Bank of America’s latest fund manager survey shows India slipping from the most-favoured to the least-preferred Asian equity market within just two months.“After disappointing earnings growth of only 6% in 2024, the pace of recovery remains sluggish in 2025, as indicated by both the economic growth parameters and corporate earnings,” said Rajat Agarwal, Asia equity strategist at Societe Generale.

(Business Correspondent)