EVEN AS EQUITY markets struggled to maintain their gains, Nifty earnings continued their steady climb over the past two years. Nifty 50 earnings per share (EPS) rose by 28% from ₹884 to ₹1,131 over two years until September 2025. Notably, earnings growth was uninterrupted with no quarterly decline during this period.

But momentum slowed after mid-2024. Despite a sharp jump to ₹1,051 by June 2024, EPS rose at a slower pace over the next five quarters, even as markets went through sharp corrections. Neelkanth Mishra, chief economist at Axis Bank, attributes this divergence between earnings resilience and markets to the speed of earnings downgrades. “This is how growth has been forecast in the past as well.” But the difference this time is the pace of cuts. “From Q3FY25, we started seeing around 3% cuts. That destabilises the market. Whatever you gain from growth going forward, you are giving away in cuts,” Mishra, who is also the MD and head of global research at Axis Capital, says.

A sharp macroeconomic slowdown in FY25, driven by nearly 130 basis points (bps) of fiscal tightening and a pronounced slowdown in credit growth, culminated in the downgrade cycle, Axis Capital notes. These factors shaved more than two percentage points off GDP through credit contraction. Hence, the 12 months until October 2025 saw NSE 200 EPS estimates cut. FY26 earnings growth estimates were revised from around 18% to nearly 12%, a weaker FY25 base notwithstanding. The nearly 20% earnings expansion witnessed during CY20-24 largely stalled in CY25, as persistent downgrades erased the benefits of underlying growth, the brokerage adds. While FY25 did see EPS cuts, Axis Capital notes that the reductions were far steeper, around 20-30%, during FY15-21. FY22-24 saw a sharp post-Covid recovery exceeding pessimistic forecasts.

Nip and tuck

Financials, primarily banks, due to slower credit growth and margin pressure, led the earnings downgrades in CY25. Consumer discretionary stocks also faced downgrades, partially offset by energy firms, particularly oil marketing companies that benefitted from stable crude prices and improved refining margins. Similar trends extend into FY27, with further downgrades in IT and financials, followed by discretionary sectors.

These headwinds, however, appear to be easing. Fiscal consolidation in FY27 is expected to be modest. With credit growth showing signs of recovery, the pace of EPS downgrades has slowed. In fact, minor upgrades to FY27-28 estimates have emerged after Q3 results. Hence, roll-forward gains have come back into play. “Most of the downgrades are behind us. That will be a good outcome,” says Mishra.

With earnings cuts easing, corporate profits are expected to grow by around 14% in 2026. “As the economy improves, and as we have matched this with bottom-up forecasts for large firms, we think these numbers are credible,” he adds. “You will see 14% growth, and that’s why we think it’s manageable.” Earnings growth will remain a key driver of market performance even if valuations do not expand further, Axis Capital notes.

The road ahead

Domestic-facing sectors such as telecom, industrials, automobiles, and financials, led the earnings recovery during FY21-FY25. Globally exposed sectors such as IT services and metals lagged. Utilities saw limited growth, while staples experienced moderation.

Axis Capital expects industrial growth to continue into FY25-28, supported by a real estate upcycle, power plant construction, and private capex revival. Telecom earnings are likely to benefit from reduced losses at Vodafone Idea. Materials could see Tata Steel-led recovery. IT services earnings are projected to improve by nearly 8%. Utilities are expected to maintain steady momentum at around 7%, while financials could deliver EPS growth of roughly 13% per year. For banks and NBFCs, the projected 17% EPS growth in FY27E is based on improving credit growth and margin expansion.

As growth prospects improve, Pankaj Pandey, head of research at ICICIdirect.com, is optimistic on equities. “With other asset classes — global equities, debt, and precious metals — delivering healthy returns in the past, the stage is set for domestic equities to outperform peers,” he mentions in a strategy report. Ultimately, 2026 may prove decisive in shaping D-Street’s consensus on the way earnings are headed.