India's headline growth - 7.8% y-o-y in the latest quarter - reads like a victory lap. However, when you factor in moderate inflation, the nominal backdrop (sub-9%) appears less favourable. Moreover, for anyone watching corporate earnings, the applause feels muted: revenue growth has been stuck in single digits for nine quarters, and profit growth has logged single digits for five straight quarters.
The obvious narrative is that GDP growth should translate into earnings growth. That, however, is too tidy.
Capex focus India's GDP acceleration has been lopsided - driven principally by government capex and services-led expansion (GCCs, public investment, infra spend). Neither government capex nor captive GCCs map directly onto listed-company earnings. Government ownership of listed firms is roughly 12%, and GCC-led services boom largely resides off public markets.
The result: headline GDP can gallop while listed earnings lag because the engines powering GDP sit outside the profit pool that markets value.
Sector composition Nearly half of Nifty 50 is banking and IT, with banks contributing about a third of index profits. Yet, both have faced headwinds.
Banks are wrestling with stress pockets - microfinance NPAs - and margin compression from lagged passthrough to depositors as rates eased.
IT is reporting low single-digit revenue growth as demand softness in the US and Europe compounds troubles from tariffs and visa-policy uncertainty.
Export focus Elevated US tariffs and policy churn bite into textiles, gems and jewellery, pharma, and chemicals - sectors that are export-sensitive and often listed. To be sure, tariff impacts may touch a small slice of GDP, but they disproportionately hit margins and order books of listed exporters.
Cyclicality and timing Q2 is likely to show consumer and auto demand being deferred ahead of GST 2.0 - a concrete example of when headline consumption numbers mask micro timing. That said, the pull-forward in demand after Sept 22 when GST 2.0 went into effect, and steady monsoon-led rural demand point toward a probable earnings uptick in Q3.
Likewise, sectors such as mining, cement and paints that were dented by an early monsoon in Q2 should recover. These oscillations create a 'news now, earnings later' pattern that can frustrate investors looking for immediate P&L confirmation.
To be sure, offsetting forces exist. A potential recovery in China, fuelled by continued fiscal support, would lift commodity and crude prices - a double-edged sword: toplines for metals and cyclicals would expand, but margins could compress for commodity-intensive firms.
That said, stronger global demand would be a tailwind for export-oriented mid- and small-caps if tariffs and policy risks subside. Timing and composition of portfolios will draw the line between winners and losers.
What should investors do?
Recognise structural mismatch GDP is necessary but not sufficient for listed earnings growth.
Horizon matters Sectoral exposures and where profits reside matter more than headline GDP beats.
Ripe for the picking Some cyclical pockets are on the cusp of a rebound (consumer discretionary, cement, select industrials), whereas others (parts of banking, large-cap IT) need evidence of improving asset quality and demand from the US/Europe respectively.
Practical approach Re-weigh portfolios toward companies with domestic-demand moats, pricing power and visible margin recovery; trimming exposure to tariff-sensitive exporters unless valuations offer comfort; and avoiding blanket plays simply because GDP prints well.
India's macro story is healthier than it has been in years, but the path from GDP to India Inc's profit-and-loss is neither straight nor uniform. The current dichotomy is explainable - government-driven capex, GCC-led services growth, sectoral concentration of index profits, and policy/tariff shocks create lags and dispersion.
For discerning investors, the opportunity lies in mapping GDP narratives to index composition: bet where profits are likely to follow growth, not where growth merely headlines.
Source Name : Economic Times