Reflecting on the second-quarter performance, Sinha noted that headline numbers remain muted despite visible attempts by companies to protect margins. “So, as far as, the Q2 numbers are concerned, if we look at Nifty numbers, it is basically a 6% to 5% handle on the sales growth,” he said. According to him, firms are tightening raw material expenses and employee compensation to conserve profitability. Yet, the overall picture remains subdued.
“I would say, it is still fairly lacklustre. It is low single-digit growth as far as profits are concerned,” he added. While the broader market appears to have fared relatively better, Sinha questioned the sustainability of this divergence, given that the underlying economic cycle is common across corporate India.
What investors are banking on instead is a rebound in the second half—supported by earlier RBI rate easing, GST cuts and income-tax rationalisation. Companies are signalling improved prospects ahead, and the market has priced in a stronger earnings trajectory, with expectations of 14–15% growth next year. But Sinha struck a cautious note: “I would say that it is kind of somewhat more complicated than what is assumed.”
He pointed out that next year’s expected earnings bump is partly a statistical effect, coming off a weak base, coupled with a lacklustre run in benchmark indices through the previous year. This has led investors to hope for better returns ahead, though the fundamentals may not show a clean one-way trajectory.
Looking Beyond FY27: Is FY28 the Next Big Hope?
When asked about the broader horizon and whether the tailwinds could sustain into FY28, Sinha urged restraint. “So, FY28 will be a long shot. People are uncertain in the near term itself,” he said, noting that even as the RBI eases rates, it is simultaneously working to relax regulatory constraints on banks.
He cited commentary from the RBI governor, deputy governor, and Chief Economic Adviser Anantha Nageswaran, all of whom have flagged concerns around the limited growth prospects for traditional banking. Regulatory easing—including more freedom around M&A activity and loan-to-value norms—may help, but Sinha believes the core challenge lies elsewhere.
“The problem I would say is not regulatory, it is more about the deposit growth,” he explained. Bank deposits have been rising at roughly 9–10% for several years. With credit-deposit ratios at peak levels and households already highly leveraged, the room to push credit expansion remains limited.
This raises deeper questions about household income, savings behaviour, and the ability of banks to fund the next credit cycle. Tax rationalisation, in his view, provides only a modest boost. Meanwhile, external demand signals remain unsteady.
Global trade—which briefly surged in early 2025 as the US front-loaded imports ahead of tariff changes—is now losing momentum. “I think that global thing is not very favourable and I would say Indian markets will largely be more domestic oriented,” Sinha said.
A Nuanced Road Ahead
The overarching message is that India’s outlook is neither bleak nor euphoric; instead, it is complex and layered. “All put together it is going to be a fairly nuanced context rather than a one-way inflection that market is anticipating over the next 12 odd months,” Sinha concluded.
For investors and policymakers, the next few quarters may offer clarity on whether the expected earnings recovery will take firmer shape—or whether the optimism surrounding FY27 and FY28 needs further recalibration.
