Indian Corporate Earnings: A Story of Resilience and a Path to Recovery

The recent corporate earnings season has been a topic of much discussion, and for good reason. Data points from the last few quarters suggest a notable shift in the Indian corporate landscape. Based on a comprehensive review of the Q2FY25 to Q1FY26 results, there is a clear trend of improving profitability, which presents a compelling narrative for the Indian market's future.

The aggregate earnings for the Indian market have demonstrated a significant beat on estimates. This isn't just a fleeting trend; it reflects a resilient corporate sector that is successfully navigating global headwinds. While the Q1FY26 earnings were modest, they largely met or exceeded expectations. Critically, analysts are now projecting a robust earnings growth trajectory for the coming years.

Valuations and the Growth Outlook

A common question among investors is whether the current market valuations are sustainable. To address this, it's essential to look at the Price-to-Earnings (P/E) multiples for key indices and contextualize them with growth projections.

Index

Highest P/E (June/July '25)

Long-Term Mean P/E

Current P/E

Projected EPS Growth (FY26)

Nifty 50

22.51

~20.7

21.7

~9%

Nifty 500

26.2

~24.0

24.1

~10-11%

Smallcap 100

33.9

~28.0

32.1

~12-15%

Note: Data points are approximate and based on analyst and brokerage reports from August 2025.

The table provides valuable context. While the Smallcap 100 index trades at a significant premium to its historical average, reflecting strong investor appetite and high growth expectations, the Nifty 50 and Nifty 500 are trading much closer to their long-term mean. This suggests that the broader market is not in a bubble and that valuations are being supported by a solid earnings outlook.

The market's resilience in the face of recent FPI outflows and global uncertainties is a testament to the strength of domestic buying power and a deepening retail investor base. This structural shift provides a strong floor for the market, mitigating sharp corrections.

Conclusion: A Foundation for the Future

The improving earnings trend, particularly the consistent median PAT and EPS growth seen over the last few quarters, is a powerful fundamental signal. It indicates that the Indian corporate sector is healthy and positioned for a new growth cycle. The market's valuation, while not cheap, is increasingly justified by a compelling earnings growth projection for FY26 and beyond.

Therefore, the conviction that the market is likely to find a solid bottom and resume its upward trajectory appears well-founded. The improving fundamentals, combined with a stable macroeconomic environment and a robust domestic investor base, lay a strong foundation. While a cautious and selective approach remains prudent, the story of India's market is now less about hope and more about tangible, profitable growth.

 

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