Forward 12-month earnings estimates for Indian large- and mid-cap firms dropped by 1.2% over the past two weeks — the sharpest fall in Asia, Reuters reports, citing LSEG data. The cuts come as the US’ 50% tariff on India — set to take effect on 27 August — raises growth risks, even with proposed domestic tax cuts looking to soften the blow.

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The downgrades follow another disappointing reporting season, extending a slowdown that began last year. Corporate earnings growth has been stuck in single digits for five straight quarters, down from 15-25% in 2020-2023. “After disappointing earnings growth of only 6% in 2024, the pace of recovery remains sluggish in 2025,” said Société Générale Asia Equity Strategist Rajat Agarwal.

Automobiles, capital goods, F&Bs, and consumer durables all saw earnings forecasts cut by around 1% or more. This comes despite the fact that Nifty 50 firms derive just 9% of their revenues from the US.

Analysts warn stretched valuations could leave Indian equities vulnerable if tariffs persist. “We could potentially see the tariff triggering a broad valuation re-rating downwards and make some of the domestic oriented stocks attractive,” says JP Morgan Asset Management Global Market Strategist Raisah Rasid.

To counter external pressures, Indian Prime Minister Narendra Modi has unveiled sweeping consumption tax cuts, proposing a two-rate structure of 5% and 18% instead of the previous 12% and 28% tax that was imposed on some items. Economists at Standard Chartered expect the reforms to lift GDP growth by 0.35-0.45 percentage points by FY 2027. MUFG, however, expects sustained 50% tariffs to reduce India’s GDP growth by one percentage point, with the textiles sector among the hardest hit.

Despite the policy support, foreign investors are pulling back. Bank of America’s latest fund manager survey shows that India has slid from the most-preferred to the least-preferred Asian equity market in just two months as doubts grow over valuations and the pace of earnings growth.

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