India is facing a significant setback in its corporate performance, with analysts noting that the country has recorded Asia’s biggest earnings downgrades in the wake of the U.S. tariff measures. The development highlights the vulnerability of Indian firms to global trade headwinds, even as the domestic economy shows resilience in certain sectors.

Earnings growth under pressure

According to market data, the earnings growth for Indian companies has remained stuck in single-digit percentages for five consecutive quarters. This is a sharp contrast to the 15%–25% profit growth that corporate India delivered between 2020–21 and 2023–24, a period when demand recovery, exports, and strong domestic consumption fuelled a robust earnings cycle.

The latest downgrades show that investors and analysts are increasingly cautious about the outlook for Indian firms, particularly those exposed to export markets and global supply chains.

U.S. tariffs and their impact

The U.S. tariffs, part of a broader set of trade protectionist measures, have particularly hurt Indian exporters in sectors such as textiles, pharmaceuticals, engineering goods, and IT services. Higher costs of market access, coupled with global economic slowdown, are reducing demand for Indian products abroad.

Analysts also note that margins are being squeezed, not only due to tariffs but also because of higher input costs, global competition, and weaker pricing power. This has led to cautious guidance by several listed companies for the remainder of FY2026.

Comparison with other Asian markets

While other Asian economies such as China, South Korea, and Taiwan have also seen their corporate earnings outlook cut, the downgrades for Indian companies are sharper. This reflects India’s greater dependence on domestic consumption-driven growth and limited ability to pass on external shocks compared to manufacturing-heavy economies like China.

Foreign investors, who had been bullish on India as a long-term growth story, are now reassessing their expectations. The equity markets have seen increased volatility, with earnings uncertainty weighing heavily on valuations.

Sector-wise impact

• Textiles and Apparel: One of the hardest hit, given India’s dependence on U.S. demand.

• Pharmaceuticals: Tariffs have added pressure in an already competitive generics market.

• IT Services: Clients in the U.S. are cutting back on spending, while higher tariffs affect service pricing.

• Engineering Goods: Exports face cost disadvantages, impacting margins.

At the same time, domestic-oriented sectors such as banking, consumer goods, and infrastructure have remained more resilient, cushioning the overall blow to corporate earnings.

Investor sentiment and policy response

The downgrades come at a sensitive time when India is also navigating inflationary pressures, rising borrowing costs, and global geopolitical uncertainties. Investors are looking closely at how policymakers respond to cushion the impact. Measures such as trade diversification, export incentives, and currency management could play a role in stabilizing sentiment.

Despite the current challenges, analysts note that India’s long-term structural growth story remains intact, driven by demographics, digital adoption, and infrastructure push. However, in the near term, earnings growth will remain constrained, and market volatility could persist.

Conclusion

India’s corporate sector is enduring one of its toughest phases in recent years, with earnings downgrades outpacing other Asian peers under the weight of U.S. tariffs and global headwinds. While domestic demand continues to provide a cushion, the prolonged period of single-digit growth underscores the need for policy support and structural adjustments to weather external shocks.

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