Broader equity markets have corrected sharply over the past five months, weighed down by geopolitical tensions, a slowdown in GDP growth, earnings downgrades, a slower-than-expected recovery, stretched valuations, and a reversal in foreign liquidity. Since its September 2024 peak of 26,216, the Nifty 50 has corrected by around 11%, with valuations easing from 23.0x to 19.2x 12-month forward earnings. This moderation reflects a mix of price correction and steady earnings among Nifty constituents.
In 2025, the US escalated its tariff war, imposing 25–35% tariffs on imports from countries such as China and Vietnam, targeting electronics, EV components and metals. In April 2025, the US administration imposed a 27% tariff on Indian imports—up sharply from the baseline 10% tariff applied across all countries. This move, part of a broader strategy to address trade imbalances, affects a substantial portion of India’s exports to the US, including sectors such as shrimp, diamonds, auto components, and textiles. As the global tariff war intensifies, its unpredictable trajectory threatens India’s economic outlook. Although India’s export exposure to the US is modest—just 2.3% of GDP—the broader implications are significant. While US tariffs present clear challenges to India’s export sectors, they also open a window for India to diversify trade partnerships and strengthen domestic industries. In response, India has adopted a diplomatic stance, opting not to retaliate immediately. Instead, it is engaging in negotiations with the US to seek relief, offering to reduce or eliminate tariffs on a significant share of US imports—contingent upon reciprocal actions.
Q4 FY25 Earnings Preview
The Q4 FY25 earnings season has commenced, with several heavyweight Nifty constituents already reporting results. Brokerages have turned selectively cautious on Nifty 50 earnings in Q4, citing weaker-than-expected performances in IT, FMCG, and Metals. While headline growth remains intact in Financials and Auto, earnings downgrades have emerged due to margin pressure, global uncertainty, and sluggish volumes in some sectors. The season has triggered modest but targeted EPS downgrades, led by IT and Metals. Analysts now expect FY25 full-year Nifty EPS to be revised down by 1.5–2.2% versus earlier expectations of an upgrade.
Brokerages anticipate a further slowdown in revenue and earnings growth in Q4, following three consecutive quarters of low single-digit growth, amid weak consumer demand and sluggish credit growth. Below is a detailed preview of earnings expectations across the top 50 firms in major sectors:
Automobiles – Downgrade Intensity: Neutral
- Volume growth slowed across most segments except tractors, which benefited from a low base.
- Revenue growth is expected in the high single digits, while margins are likely to remain flat year-on-year.
- Despite price hikes, profitability remains muted due to higher discounts, advertising spends, and negative operating leverage.
- Consumption demand remains weak, especially in mass-market segments, although some recovery is expected on the back of lower taxes, interest rates, and potential fuel price cuts.
IT Software Services – Downgrade Intensity: Neutral
- Large IT firms are expected to post sequential revenue declines due to muted demand, seasonal weakness, and fewer billing days.
- Mid-cap IT firms are likely to outperform on both growth and margins, aided by rupee depreciation and tighter cost controls.
- Operating profit margins may improve year-on-year, depending on the timing of wage hikes.
FMCG – Downgrade Intensity: Moderate
- Demand remains soft, particularly in urban markets, with consumers increasingly downtrading.
- Rural demand, which accounts for around a third of FMCG sales, remains stable and has outpaced urban demand for five consecutive quarters.
- Sales growth will be a mix of volume and pricing, amid easing input cost inflation.
- Investors will closely monitor competitive dynamics and the inflation outlook.
Pharmaceuticals & Healthcare – Upgrade
- The sector is projected to deliver 10–11% growth in Q4, driven by domestic formulations and niche US launches.
- Domestic sales may rise in double digits, although seasonal weakness could affect acute therapies.
- The US business faces price erosion, though rupee depreciation and select product gains may offset some of the pressure.
- Hospital occupancy may remain weak due to seasonal festivals and lower international footfall.
Consumer & Retail – Downgrade Intensity: Neutral
- Urban discretionary spending continues to face pressure, resulting in mixed performance.
- Apparel demand remains subdued, though jewellery is likely to perform well, buoyed by the wedding season.
- Value fashion brands are seeing strong momentum, while mid-premium apparel continues to struggle.
- Demand for fast-moving electrical goods remains soft due to inflationary pressures.
Banks – Downgrade Intensity: Low
- After leading earnings growth for nearly two years, banks are expected to post slower growth in Q4.
- Combined net profits could decline 13% YoY as net interest margins compress.
- Lending yields may fall following repo rate cuts, adding further pressure.
- Net interest income is projected to grow by just 3.9% YoY—its slowest pace in 16 quarters.
Finance & Insurance – Downgrade Intensity: Low
- Diversified NBFCs are likely to outperform banks, driven by higher loan growth.
- Net profit for diversified lenders may rise 21% YoY, with NII up 18%.
- Growth will be led by housing finance and gold loan firms, while microfinance and small finance banks may lag.
Oil & Gas – Downgrade Intensity: High
- Despite higher revenues, net profits are likely to fall significantly YoY due to margin pressure.
- Oil marketing companies likely faced compressed margins from rising crude prices.
- Gas utilities may benefit from inventory/trading gains, cushioning the impact of weak LNG volumes and elevated spot prices.
Mining, Metals & Cement – Downgrade Intensity: High
- Metal and mining companies should post strong earnings on the back of higher base metal prices.
- Cement firms are likely to report their fourth consecutive quarter of profit decline due to price pressure and a high margin base last year.
Power, Infrastructure & Capital Goods – Downgrade Intensity: Low
- Power utilities may report modest 6–7% YoY growth in revenue and profits, with demand and generation remaining soft.
- Infrastructure firms are facing execution delays due to payment bottlenecks and slow approvals.
- Road-focused EPC firms may be hit harder, while diversified infra players may fare better.
- Capital goods companies are expected to post just 6% YoY profit growth—their slowest in 12 quarters.
- Defence and power transmission players are likely to outperform, though a broader order inflow recovery is yet to materialise.
Monetary Policy and Fiscal Support
Acknowledging the weak consumption environment, Indian policymakers have implemented measures to boost aggregate demand. The Reserve Bank of India (RBI) has pivoted towards growth as food inflation eases. In April 2025, the RBI reduced the repo rate from 6.25% to 6.00%—its second cut in nearly five years. Since November 2024, it has also increased liquidity injections into the banking system, which slipped into deficit after December. Lower interest rates are expected to support rate-sensitive sectors such as housing, banking, and automobiles.
Capital expenditure growth by the central government was subdued through most of FY25 due to general elections and a strong monsoon that disrupted supply chains. However, spending picked up in December–January, bringing total capex for April 2024 to January 2025 to ₹7.6 trillion—up 5% YoY. A sustained push in the final two months to meet revised fiscal targets should support investment activity. The FY25 Union Budget’s personal income tax relief could lift consumption, particularly among upper middle-income households, potentially strengthening urban demand, which remained soft throughout the year.
India’s manufacturing sector continues to outperform regional peers, supported by a strong Purchasing Managers' Index (PMI) reading of 56.3. High-frequency indicators point to improving momentum since December, with continued strength seen in services PMI, cargo volumes, and toll collections. These trends have led analysts to project GDP growth of 6.5–6.7% for FY26E.
Foreign Institutional Investors Flows
As of mid-April 2025, foreign institutional investors (FIIs) and domestic institutional investors (DIIs) have displayed contrasting behaviours in the Indian equity market. FIIs have remained consistent net sellers, while DIIs have acted as net buyers, providing key support to market stability. As of 11 April 2025, FIIs recorded a net outflow of ₹34,641.79 crore, whereas DIIs registered a net inflow of ₹27,588.18 crore. Year to date, FIIs have withdrawn a total of ₹176,471.32 crore, while DIIs have infused ₹212,859.58 crore—highlighting the rising influence of domestic institutions in cushioning the impact of foreign capital outflows.
FIIs have trimmed exposure to overvalued technology stocks and new-age companies, driven by global interest rate hikes and stretched valuations. In contrast, DIIs have increased allocations to sectors such as banking, FMCG, and infrastructure—capitalising on India’s consumption-driven growth and robust government spending.
FIIs remained net sellers during the first half of March 2025, offloading equities worth ₹21,234 crore. However, they turned net buyers in the second half. Since 20 March 2025, FIIs have consistently been net buyers in Indian equities, accumulating stocks worth ₹32,489 crore.
Valuations
The Nifty 50 is currently trading at a trailing 12-month price-to-earnings (P/E) ratio of 19.2x, placing it within its historical average range. This suggests the index is fairly valued relative to long-term trends—neither undervalued nor excessively priced. The price-to-book (P/B) ratio stands at 3.8x, reflecting investor confidence in long-term earnings potential, particularly in capital-efficient sectors such as financials and consumer goods.
Related Fund
NDIA: The Global X India Nifty 50 ETF (ASX: NDIA) invests in 50 of the largest companies listed in India.
