Despite a rebound in major indices, Indian equities are showing signs of underlying weakness as earnings growth decelerates, particularly in key sectors. Investors are now weighing price gains against deteriorating corporate profitability.
- NIFTY50 has risen over 4% in early 2026 despite weakening earnings growth.
- Infosys (INFY.NS) reported 4.1% revenue growth—its weakest in over three years.
- Reliance Industries (RELIANCE.NS) posted 5.2% net profit growth, down from 12.5% in the prior quarter.
- The financial sector’s net profit growth slowed to 6.8%, from 10.4% in the previous quarter.
- Earnings growth in IT and consumer goods sectors has decelerated sharply since late 2025.
- Investors are now questioning the sustainability of the market rally amid deteriorating fundamentals.
Indian equities have rebounded in early 2026, with the NIFTY50 index climbing over 4% since the start of the year, buoyed by improved investor sentiment and strong foreign inflows. Yet this rally is being undermined by a marked slowdown in earnings growth across major sectors. The IT sector, a traditional engine of India’s market performance, reported a quarterly earnings growth rate of just 2.3%—down from 14.7% in the same period last year. Infosys (INFY.NS), a bellwether in the space, saw its revenue growth decline to 4.1% year-on-year, the weakest in over three years. In the consumer goods and financials sectors, earnings momentum has also weakened. Reliance Industries (RELIANCE.NS), India’s largest conglomerate, reported a 5.2% increase in consolidated net profit, significantly below the 12.5% growth seen in the previous quarter. This reflects broader pressures from sluggish domestic demand and tighter credit conditions. The financial sector, represented by major banks like HDFC and ICICI, recorded a 6.8% year-on-year rise in net profit, down from 10.4% in the prior quarter. The deceleration in earnings raises concerns about the sustainability of the current market rally. While equity prices have been driven by macroeconomic optimism—such as stable inflation and a resilient rupee—the disconnect between valuations and fundamental performance is becoming increasingly apparent. Analysts warn that if earnings fail to regain momentum by Q2 2026, the rally could stall or reverse, particularly in growth-oriented sectors. Market participants are now closely watching upcoming earnings reports from other large-cap firms. A continued trend of softening profits may prompt a reassessment of India’s attractiveness as an emerging market investment destination, especially among global funds with strict earnings screens.