Markets signal a turning point: earnings growth may have bottomed out in calendar year 2025
Indian market experts are increasingly confident that corporate earnings growth hit its low point in calendar year 2025. After a period of compression driven by slowing global demand, higher input costs and tighter financial conditions, analysts now see early signs of a recovery in profit momentum.
Why experts think the worst is behind us
- Stabilising input costs: Commodity prices and freight costs that squeezed margins over the previous year have eased from their peaks. That relief is showing up in better gross margins for many manufacturing and consumer-facing companies.
- Interest-rate plateau: With central banks in several key economies moving away from aggressive hikes, borrowing costs have stabilised. For Indian firms with sizable working capital needs or those planning expansion, this reduces near-term financial stress.
- Domestic demand resilience: Consumer spending and services activity in urban centres remain steady, supporting earnings in retail, financials and services sectors. Strong income flows in urban India are cushioning the broader corporate sector.
- Improving order books and capex intent: Several cyclical sectors report steadier order pipelines and renewed capital expenditure plans, which could start to boost revenues and margins over the coming quarters.
Which sectors could lead the recovery
- Banks and financials: Easing credit costs and stable deposit growth can lift net interest margins and improve asset quality, supporting profit recovery.
- Industry and manufacturing: With input inflation fading and demand for quality goods picking up, select industrial players may benefit from margin expansion.
- Consumer discretionary: As confidence returns, discretionary spending often rebounds faster, offering upside to retailers, auto makers and consumer durables.
- Services and technology: While global demand remained patchy, resilient domestic consumption and a shift toward higher-value services could sustain revenue growth.
What investors should watch next
Even as the bottoming view gains traction, several indicators will be important to confirm a durable earnings recovery:
- Earnings revisions: A clear trend of upward earnings revisions from sell-side analysts would be a strong confirmation that earnings have turned.
- Operating leverage: Companies monetising operating leverage—where revenues rise faster than fixed costs—can show outsized improvements in profits.
- Capex and order books: Sustained increases in capital spending and healthy order backlogs are forward-looking signals that revenue growth could accelerate.
- Policy and rate signals: Any unexpected tightening or loosening by the central bank will matter for credit costs and consumer demand.
- Commodity and currency moves: Renewed spikes in commodity prices or sharp currency moves can quickly reverse margin improvements for exposed firms.
Potential risks that could delay recovery
Experts caution that the path back to consistent earnings growth is not guaranteed. Key risks include:
- Global demand shocks: A sharper-than-expected slowdown in major trading partners could hit exports and services revenue.
- Inflation re-acceleration: If inflation flares up again, central banks may tighten policy, raising borrowing costs and pressuring consumption.
- Geopolitical disruptions: Supply chain interruptions or trade tensions could push up input costs and squeeze margins.
- Domestic demand fatigue: A slowdown in rural income or job growth would weaken consumer-facing sectors.
What companies should focus on
Management teams can help convert the bottoming of earnings into sustained recovery by:
- Prioritising cost discipline while selectively investing in high-return opportunities.
- Strengthening balance sheets to maintain flexibility for expansion or to ride out shocks.
- Improving pricing power through product differentiation or better supply-chain management.
- Monitoring working capital closely to ensure cash flows remain healthy as revenue patterns shift.
Implications for portfolio strategy
For investors, the likely bottom in earnings growth suggests a shift from defensive to more selective growth-oriented positioning. Practical steps include:
- Reassessing valuations and favouring companies with visible earnings visibility and strong balance sheets.
- Rotating into cyclical sectors that typically benefit from a recovery, while keeping exposure to quality defensive names.
- Watching for increasing analyst upgrades and earnings surprises as confirmation of the trend.
Bottom line
Market experts’ view that earnings growth may have bottomed out in calendar year 2025 is cautiously optimistic. The combination of easing cost pressures, stable interest rates and resilient domestic demand creates room for corporate profits to improve. However, confirmation will depend on sustained revenue gains, margin expansion and the absence of fresh macro surprises. For both corporate managers and investors, staying disciplined and data-driven will be key as the recovery unfolds.