Budget 2025: Catalyst or temporary relief for India Inc earnings slowdown woes?

Vinod Nair, head of research at Geojit Financial Services also pointed out that a meaningful recovery requires improved corporate guidance for the coming quarters.

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“The Street expects Nifty earnings to grow 10 percent in Q3FY25, compared to 4 percent in Q2FY25. While sequential improvement in earnings is positive, Nifty earnings must grow at 15 percent to justify its current valuation of 21-22x price-to-earnings (PE),” Nair added.

So far, the third-quarter earnings season has been lackluster, with major IT firms like TCS and HCL Technologies delivering in-line results, while Infosys and Wipro fared better-than-expectations. However, their optimistic guidance offers some hope for a turnaround in upcoming quarters.

To revive corporate earnings, Rakesh Vyas, co-chief investment officer and portfolio manager at Quest Investment Advisors, believes the Budget could serve as a catalyst. He suggests that measures like tinkering with tax slabs and increased government spending, which could help address sluggish demand and fuel earnings growth from Q2FY26 onward.

Meanwhile, independent analyst Ambareesh Baliga said that investors will focus more towards execution of projects instead of just headline announcements. "While capex announcements are likely to be 8-10 percent higher than last year, execution will be the real test for companies," he explained.

What is the Street watching out for?

Fiscal consolidation: Analysts at Elara Capital believe that the market confidence hinges on the government's ability to balance growth and fiscal discipline. As fiscal deficit is one of the key metrics tracked by FII and global rating agencies to assess the economy, any guidance by the government of a lower-than-targeted fiscal deficit could be positive.

Increased spending on capex: With overall expenditure growth muted at just 3 percent as of November 2024, Goldman Sachs analysts expect the government to increase spending on rural welfare and transfer schemes. This is particularly important given the reduced parliamentary majority of the ruling NDA coalition after the 2024 elections.

Addressing uneven demand recovery: India’s post-pandemic recovery has been uneven, with rural demand lagging behind urban consumption. This “K-shaped” recovery has left entry-level demand weak, even as luxury segments thrive. Measures aimed at bolstering rural incomes and wages could stimulate demand for small-ticket consumer goods and eventually benefit the FMCG sector.

Tweaking tax slabs: Persistent demand slowdowns could be addressed through quick fixes like tax breaks for MSMEs or changes in personal tax slabs. Rajani of Anand Rathi Wealth suggests introducing a new slab between Rs 15 lakh and Rs 20 lakh or enhancing existing deductions, which could provide consumers with more disposable income and boost spending.

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