Q4FY25 Wraps with Mixed Signals, FY26 Earnings Outlook Faces Continued Downgrades
Despite better-than-expected Q4 results, analysts project further pressure on FY26 corporate earnings amid weak demand and valuation concerns.
Analysts turn cautious as earnings downgrades gain pace
With the Q4FY25 earnings season nearing its end, market experts are raising red flags about the corporate earnings trajectory for FY26. While the most recent quarter offered some positive surprises, the forward outlook remains muted, and earnings downgrades are now surpassing upgrades across key sectors.
- Several brokerages have already begun trimming their FY26 estimates, citing sustained macro and demand headwinds.
- The lack of strong triggers to support market rally further puts pressure on earnings to drive valuations.
Sector-specific weakness leads EPS cuts
According to a recent note by Nuvama Institutional Equities, FY26 earnings per share (EPS) estimates have been cut by 2%.
- Earnings were downgraded in consumer, auto, and industrial sectors.
- Commodity-linked sectors showed more stable trends, avoiding major cuts.
- Notably, BSE 500’s FY26 EPS has already seen a cumulative 10% downgrade over the last year, with small and midcaps facing steeper declines.
Nuvama cautioned that the pace of these cuts is “worrying” and likely to persist unless demand conditions improve.
Motilal Oswal: Upgrades lag behind downgrades
Motilal Oswal Financial Services (MOFSL) echoed similar concerns, stating that while Q4FY25 earnings came in above expectations, the trend in forward earnings remains weak.
- Its coverage universe saw a 2.2% earnings downgrade for FY26.
- Midcap and smallcap estimates were revised downward by 3.8%, while largecaps saw a 1.8% cut.
“The pattern of downgrades exceeding upgrades points to continued earnings risk,” the firm noted.
JM Financial: EPS cuts extend to FY27
JM Financial has also lowered its projections significantly, cutting FY26 and FY27 EPS estimates by 5.3% and 5.9%, respectively.
- Revised growth outlook for Nifty50 EPS now stands at 12.0% for FY26 (down from 16.4%) and 14.3% for FY27 (from 15.1%).
- The largest downgrades were seen in Automobiles, Cement, Oil & Gas, and NBFCs.
Despite Q4FY25 Nifty50 EPS rising by 4.9%, which was better than last year’s 2.2% decline, forward estimates signal a more conservative stance.
Market caught between valuation stress and weak macros
Kotak Institutional Equities, in its latest strategy note, highlighted that Indian equities remain trapped between expensive valuations, slowing domestic demand, and global macro uncertainties.
- Hopes of a recovery in economic activity and earnings are necessary to sustain market levels, but visibility remains low.
- Stretched valuations without earnings support could increase market vulnerability to corrections.
A cautious road ahead for FY26
Despite a relatively resilient Q4FY25 earnings season, FY26 appears to be shaping up as a more challenging year, with broad-based EPS cuts, muted outlooks, and limited earnings visibility. Analysts suggest investors brace for continued volatility, as corporate India navigates high input costs, tight margins, and macroeconomic pressures.
