India’s Earnings Revival Expected in 2026 Amidst Geopolitical and Market Shifts

India’s corporate earnings are poised for a rebound in 2026, driven by a shift in government policy towards consumption and anticipated rate cuts by the Reserve Bank of India (RBI). However, geopolitical tensions in West Asia and competitive pressures from other Asian markets present ongoing challenges.

Geopolitical Risks and Energy Dependence

Rising geopolitical tensions in West Asia pose a significant risk to India, particularly concerning energy supplies. Sridhar Sivaram, Investment Director at Enam Holdings, highlighted India’s substantial reliance on the Gulf Cooperation Council (GCC) region for crucial resources. “We import almost 50% of our crude from the GCC countries and a large part of our LNG imports come from there. Remittances come from there. So, this has a larger impact if this continues for a longer period of time,” Sivaram stated in an interview with ET Now. Source

Although hoping for a swift resolution to the conflict, Sivaram cautioned that prolonged instability could negatively impact India’s economy, even if a full return to normalcy isn’t immediately achieved. He doesn’t foresee crude oil prices returning to the $60 per barrel range quickly. Source

Shift in Government Policy and Rate Cut Expectations

A key driver of the anticipated earnings revival is a policy shift from investment-led growth to a focus on consumption. Government measures such as GST rate cuts and tax reductions are expected to stimulate consumer demand. Sivaram noted that it takes approximately 6-12 months for these measures to fully impact the economy, with the full effect anticipated in 2026. Source

The RBI is as well expected to implement rate cuts. Sivaram anticipates two rate cuts of 25 basis points each, beginning immediately, citing potentially overstated inflation projections and a need for 4-5% inflation for healthy earnings growth. Source

FII Flows and Asian Market Competition

Currency pressure, with the rupee breaching the 92-per-dollar mark, is also a concern. Foreign Institutional Investors (FIIs) have been reducing their exposure to India, partly due to stronger earnings opportunities in other Asian markets. Sivaram pointed out that markets like Korea and Taiwan are experiencing significant earnings growth, driven by the artificial intelligence (AI) sector. Source

“So, one of the reasons for FIIs selling…is because Asia is going through an earnings super cycle,” Sivaram explained. Source While India is expected to see earnings growth reach 15% in fiscal year 2027, its valuations are higher compared to markets like Taiwan, Korea, and China. Source

Sector-Specific Outlook

Sivaram remains cautious about the Information Technology (IT) sector, believing that the impact of AI represents a structural challenge leading to a PE derating event, similar to the media industry’s transformation with the rise of over-the-top (OTT) platforms. He noted that while IT companies may not disappear, their revenue growth and profit margins are likely to be affected. Source He also stated that India currently lacks a clear investment opportunity in the AI trade, with the primary AI-related gains occurring in Korea, and Taiwan. Source

He also expressed a bearish outlook on insurance companies. Source

Market Resilience and Future Outlook

Despite geopolitical risks and global competition, Indian benchmark indices have shown relative resilience. However, Sivaram cautioned that headline indices can mask underlying weakness in the broader market. He anticipates that the favorable base effect will contribute to earnings growth in the coming year. Source