India's corporate sector delivered a broadly reassuring Q4 earnings season, reaffirming the underlying strength of the domestic economy. But even as the final results trickle in, a more uncomfortable question is already consuming markets: is a wave of earnings downgrades for the first quarter of FY27 now inevitable?
The answer, according to some analysts, is increasingly yes, at least in the near term.
"Management commentary across most companies clearly flags macro, logistics, and pricing risks," JP Morgan's Rajiv Batra warned in a recent note. "If the disruption lasts longer than expected, companies might be forced to reduce their full-year outlook on upcoming calls." Batra's bank believes earnings in Q1, and potentially Q2 if the oil shock is prolonged, are likely to face pressure from higher input prices and currency depreciation. JP Morgan's bear/base/bull case Nifty-50 targets stand at 20,500/27,000/30,000 respectively.
The anxiety is rooted in a confluence of forces: elevated crude prices driven by the Iran conflict and the near-closure of the Strait of Hormuz, a rupee under pressure, higher-than-anticipated wholesale price inflation, and bond yields that remain stubbornly firm. Together, these are pushing up borrowing and import costs precisely when corporate India was hoping to consolidate a recovery.
Goldman Sachs has added a pointed dimension to the debate, flagging that earnings revisions have become an increasingly important variable guiding foreign flows in Indian equities. “While much of foreign selling may have already occurred in anticipation of the forthcoming downgrade cycle, low visibility around a recovery will likely impede foreign re-buying in the near-term,” Goldman said.
Not everyone is sounding the alarm just yet. Emkay Global's Seshadri Sen notes that earnings forecasts for India have remained surprisingly resilient since April 1, as analysts treat the Iran conflict as a passing phase despite cautious management commentary. Nifty EPS is steady at Rs 1,231, down just 1.4% since March 31 despite macro headwinds.
More tellingly, 44% of the 500-stock consensus universe is still expected to deliver more than 25% FY27 EPS growth, suggesting the street is implicitly building in a restoration of normalcy from Q2FY27. Nifty EPS growth remains healthy at 14.3% and 15.8% for FY27 and FY28 respectively. Granular downgrade data reinforces this relative resilience: only 24% of companies in the consensus universe have seen earnings cuts of more than 5%, and that share is declining.
Morgan Stanley takes a more structurally optimistic view, arguing that earnings growth is turning after a six-quarter mid-cycle slowdown and is likely to accelerate, driven by RBI rate cuts, bank deregulation, liquidity infusion, strong capex in energy, defence, semiconductors, fertilisers, and data centres, alongside large tax cuts. The bank also points to trade deals with the US and the EU, and a thawing of China relations, as adding to the positive mix.
Also Read | JP Morgan warns of FY27 earnings risk, says Nifty can fall to 20,500 in bear case
Sectoral Fault Lines
Antu Eapen Thomas, Senior Research Analyst at Geojit Investments, agrees that Q4 earnings have mostly confirmed the domestic economy remains strong but cautions that the first quarter of FY27 is a different story. "Concerns over potential earnings downgrades are gaining traction, driven by elevated crude prices and higher-than-anticipated WPI readings," he said. "Rising bond yields and a weakening rupee have translated into higher borrowing and import costs, further pressuring corporate profitability."
Thomas identifies aviation, consumer discretionary, auto, paints, fertilisers, and oil marketing companies as the sectors most prone to downgrades in Q1, as elevated crude prices and a weaker rupee drive up import costs, fuel expenses, and raw material bills, compressing operating margins.
Crucially, however, he frames the challenge as transitory. "We view the Q1FY27 earnings challenges as reflecting a supply-side shock rather than a demand collapse. As the economy stabilises, we expect earnings momentum to regain traction in H2FY27."
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Hormuz Wildcard
The wildcard that markets are grappling with most acutely is the duration of disruption to the Strait of Hormuz. JP Morgan's analysis suggests that even when the conflict is officially over and the strait reopens, the backlog of vessels, combined with the need for ships to navigate alternative routes, means normalisation of energy flows could take three to four months. That timeline has direct implications for how many quarters of earnings bear the brunt of elevated input costs.
JP Morgan's broader MSCI India earnings growth forecast stands at 11% and 13% for CY26 and CY27 respectively, a more cautious read than the domestic consensus. The bank also notes that the cyclical recovery that gained traction in late 2025, aided by policy measures, had already begun losing momentum even before the oil price shock hit.
The preferred positioning, Batra writes, leans heavily towards high-growth domestic cyclicals. JP Morgan has upgraded Industrials to Overweight, driven by government-backed infrastructure spending, electrification demand, the defence modernisation push, and manufacturing expansion.
The Bottom Line
India Inc. emerged from Q4 with its credibility largely intact. The domestic economy held up, balance sheets remained healthy in many pockets, and full-year guidance was broadly maintained with the critical caveat that it assumed tensions ease.
That assumption is now being tested. Inflation and El Niño remain additional risks to monitor for demand resilience through FY27. The next earnings season, covering April to June, will be the real referendum on whether India's corporate sector can absorb the shock or whether the downgrade cycle that Goldman Sachs and JP Morgan are flagging will prove deeper and more prolonged than the market is currently pricing.
For now, the street is giving corporate India the benefit of the doubt.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
