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Indian companies are facing the sharpest earnings downgrades in Asia, with analysts reducing forecasts due to the impact of steep U.S. tariffs on growth prospects. According to LSEG IBES data, forward 12-month earnings estimates for large and mid-cap firms in India have been cut by 1.2% in the past two weeks, marking the most significant reduction in the region.

This downward trend comes after a lackluster season of quarterly earnings reports that have plagued listed firms for over a year, negatively affecting benchmark equity indexes. Although Indian companies earn only 9% of their revenue from the U.S., the recent tariff hikes pose a significant risk to economic expansion.

Analysis by MUFG suggests that a sustained 50% tariff could potentially reduce India’s GDP growth by 1 percentage point over time, primarily impacting employment-sensitive sectors such as textiles. In response, Prime Minister Narendra Modi has announced comprehensive tax reforms to boost domestic consumption and support the economy amidst the ongoing trade conflict with the United States.

Despite the challenges, experts like Raisah Rasid, global market strategist at J.P. Morgan Asset Management, see opportunities for reevaluation of valuations, making domestically focused stocks more attractive. Earnings growth for Indian companies has been modest in recent quarters, falling below the levels seen in previous years.

Following recent earnings reports, forecasts for sectors like automobiles, capital goods, food and beverages, and consumer durables have seen significant cuts in earnings estimates. On a positive note, the government’s decision to reduce consumption taxes is expected to contribute to a boost in GDP growth.

India’s real GDP growth outpaced other countries in the Asia-Pacific region between fiscal 2022 and 2024, and it is projected to continue growing at a healthy rate of 6.8% annually over the next three years. Nevertheless, a recent survey by Bank of America indicates a shift in perception of Indian equities, from a favored market to a less preferred one in just two months.

Reflecting on the current scenario, Rajat Agarwal, Asia equity strategist at Societe Generale, highlights the sluggish recovery in both economic growth indicators and corporate earnings. Despite the challenges, India’s resilient economy and ongoing policy reforms position it for potential growth in the long term.