India’s Strong GDP Growth Overshadowed by Weak Corporate Earnings and Market Outflows

India’s economy recorded robust growth of 7.8% in the April–June quarter of 2025, outpacing global peers. Yet, the country’s equity markets remain under pressure as subdued corporate earnings, higher U.S. tariffs, and slowing nominal GDP growth weigh on investor sentiment. Despite its reputation as the fastest-growing major economy, foreign investors have pulled $15 billion from Indian equities so far this year, with $4 billion exiting in August alone.

Analysts highlight that weaker nominal GDP growth, expected at just 8.5%–9% for the financial year—the lowest in two decades outside the pandemic—has a direct impact on corporate profitability. Revenue growth among India’s top 3,000 listed companies fell to a seven-quarter low of 3.4% in Q2, undermining confidence in earnings potential. Portfolio managers warn that foreign inflows will likely remain muted amid weaker credit growth, asset quality concerns in banks, and the drag from tariffs imposed by the U.S. on key Indian exports.

India’s benchmark Nifty 50 index has gained only about 4% this year, making it one of the worst performers among major Asian markets. Consumer goods companies such as Hindustan Unilever and Colgate Palmolive India also reported lackluster results, reinforcing the cautious outlook. Economists estimate that the U.S. tariffs could shave 0.6 to 0.8 percentage points off India’s GDP growth if sustained for a year, while indirect effects such as job losses in textiles and jewelry could worsen the slowdown.

Still, some fund managers believe the recent market underperformance presents a potential entry point. They argue that valuations, while still at a premium compared to emerging-market peers, have moderated since last year’s peak. Domestic policy measures, including a proposed reform of the goods and services tax (GST), could further stimulate consumption and support earnings recovery across consumer-driven sectors like retail, banking, and infrastructure.

Looking ahead, experts say a stronger rebound in household spending could ignite a virtuous cycle of private investment and credit growth over the next six to 12 months. While short-term caution dominates due to tariffs and weak earnings momentum, India’s long-term fundamentals—from its large consumer base to government-backed reforms—continue to offer investors significant opportunities across key growth sectors.

Source: Reuters