India’s Q1 Earnings Underwhelming; Banks and IT Sectors Drag Overall Growth

India’s corporate profit growth remained weak in April–June 2025, extending a slowdown that began last year despite a strong macroeconomic backdrop. Aggregate earnings growth for the 38 Nifty 50 firms reporting so far stood at just 7.5%, and earnings estimates for MSCI India stocks have been cut to 8%, marking a fifth successive quarter of single-digit growth. 

Economic Context and Earnings Pressures
Despite projected GDP growth of 6.5% in FY2025 and continued low inflation, profit expansion has weakened across key sectors. Nominal GDP growth—accounting for inflation—is expected to remain below 10% for a third year in a row, underscoring structural sluggishness in corporate margins. 

Sectoral Insights: Banks and IT Underperform
The banking sector, which carries the largest weight in the Nifty index, posted muted quarterly earnings due to margin compression and higher provisioning. Profit growth among the top private banks averaged just 2.7%, pulled down by rising non-performing loans and conservative loan growth. Meanwhile, the IT sector also disappointed—U.S. demand remained subdued, impacting Indian exporters in software and services.

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Resilient Sectors Offer Glimmers of Hope
Some sectors offered relief: auto, cement, and select infrastructure firms reported solid performance and met or beat expectations. Analysts view these sectors as outperformers amid widespread weakness, buoyed by domestic demand and infrastructure spending.

Market commentators emphasise that earnings momentum will likely remain lacklustre unless credit growth recovers, private capital expenditure strengthens, and rural demand improves with monsoon conditions. Any material recovery is expected only in the second half of FY2026. 

Broader Market Outlook and Sentiment
While major equity indices have climbed about 10% this fiscal year, valuation support has waned amid dampened earnings growth. Some analysts suggest the market may remain rangebound until sentiment returns and credit conditions improve. Nitin Raheja, among others, notes that earnings have not been as disappointing as feared, particularly in domestic cyclicals, telecom, consumer discretionary, capital goods, and cement sectors—raising hope for a possible turnaround. 

Conclusion
India’s corporate earnings landscape remains challenging, highlighted by tepid performance in banking and IT. With profit growth below peers’ long-term averages and only a few sectors showing strength, the earnings engine lacks momentum. Recovery hinges on credit expansion, rural demand uplift, and broader capex growth. Unless these shifts materialise in late FY2026, market gains may stay capped despite macroeconomic stability.