Worst of India Inc’s earnings cycle over; Jefferies says momentum to strengthen, downgrades to be limited

India’s corporate earnings may have moved past the weakest phase, with the momentum likely to strengthen meaningfully from here, said Jefferied. Benchmark Nifty 50 has gained 10.4 percent so far in 2025, and now trades less than 1 percent below its record high. The brokerage projects around 10 percent earnings growth in H2FY26 and a further 16 percent rise in FY27 as downgrades ease and sectoral disruptions fade.

Analysts led by Mahesh Nandurkar said that the first half of FY26 corporate earnings was held back by weather-related disruptions, softer power demand, a slowdown in construction activity and delayed consumption. These pressures are now receding, creating room for a clearer improvement in the second half. Jefferies also flagged that earnings downgrades in financials appear balanced, while cuts in sectors such as IT and energy are largely behind the market.

Earnings recovery seen strengthening from H2FY26

Jefferies expects a more broad-based earnings uptick beginning in H2FY26, helped by the low base of the first half and a consumption boost supported by recent tax cuts. It said the environment is turning more supportive for autos, banks, power and consumer stocks, which together are likely to drive a meaningful portion of the recovery.

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The brokerage forecasts H2FY26 earnings growth of around 10 percent year-on-year, aided by volume recovery and operating leverage. Across FY26 and FY27, it expects revenue growth of 13-14 percent and a modest improvement of about 20 basis points in EBITDA margins. Cement and telecom are identified as the fastest-growing sectors, with projected earnings growth of 34 percent and 25 percent respectively. Jefferies also sees only limited room for further broad-based downgrades in the second half of FY26.

For FY27, the brokerage projects earnings growth of 16 percent, supported by normalisation of demand. This would be aided by steady contributions from banks, autos, telecom and consumer firms.

HSBC expects Sensex to reach 94,000 by 2026-end, earnings to recover

In a separate note, global brokerage HSBC projected a 10 percent rise in the BSE Sensex by end-2026, setting a target of 94,000. It said India’s equity market is beginning to look attractive again after a stretch of soft earnings, elevated valuations and heavy foreign outflows earlier in the year.

Foreign portfolio investors have sold $16.8 billion worth of Indian equities in 2025 so far, putting the market on course for a record year of outflows. However, HSBC added that selling has eased since October as earnings stabilised. Both the Sensex and Nifty are up about 10 percent this year.

HSBC expects earnings to recover further, with banks’ margins set to strengthen and consumer-facing sectors -- including autos -- likely to benefit from GST reductions and lower interest rates. The brokerage said valuations have cooled after a 14-month lull, improving the overall risk-reward outlook for domestic stocks.

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