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Earnings Up 12% YoY in H1 FY25, Yet Stock Gains Remain Modest

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  Published in Stocks and Investing on Monday, December 8th 2025 at 4:19 GMT by moneycontrol.com

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Earnings Are Holding Up but Stock Prices Aren’t – PMs, Managers See Widening Gap in H1 FY25

The first half of fiscal year 25 (H1 FY25) has proved a mixed bag for Indian corporates and the equity market. While a broad swath of companies have reported earnings that are steady or even improving, the reaction in the stock market has been tepid. A growing chorus of portfolio managers (PMs) and corporate leaders points to a widening disconnect between corporate profitability and market valuations – a trend that could shape investor sentiment and corporate strategy in the months ahead.

1. Corporate earnings: a largely resilient picture

Key take‑aways from H1 FY25 earnings

• Average earnings per share (EPS) growth: Across the 25 companies highlighted in the MoneyControl analysis, the average EPS grew by 12 % YoY, a figure that outstripped the 9 % growth observed in the previous half‑year.
• Sectoral strength: IT services (TCS, Infosys, Wipro), consumer staples (HUL, Nestlé India), and financial services (ICICI Bank, Bajaj Finance) were the standout performers, each posting EPS beats of 10‑15 % against analyst consensus.
• Margin resilience: Operating margins remained largely flat or improved marginally – a sign that companies are managing cost inflation and supply‑chain pressures effectively.
• Revenue growth: The same cohort enjoyed average revenue growth of 9 % YoY, buoyed by strong domestic demand and a rebound in global outsourcing contracts.

Despite these positive fundamentals, the broader market, as measured by the Nifty 50 and Sensex, has only risen 5 % and 6 % respectively over the same period – far less than the earnings‑driven upside suggested by corporate results.

Why the earnings beat is not fully priced in

• Valuation compression: Analysts noted that many companies are trading at a premium P/E ratio compared to their peers, which limits the upside that can be captured in share prices.
• Interest‑rate uncertainty: The Reserve Bank of India (RBI) is maintaining a tight stance on liquidity, and the global expectation of rising U.S. Fed rates has dampened risk appetite.
• Regulatory headwinds: Recent RBI directives on capital adequacy and digital lending have raised cost concerns for banks, pushing back the upside in their stock prices.

2. The widening earnings‑stock gap: what managers and PMs are saying

Portfolio manager insights

• Sanjay Bhatia, Equity Strategist, Edelweiss Asset Management: “We’ve been monitoring the earnings‑to‑price trajectory for the past two quarters. Earnings growth is outpacing price appreciation – which is a healthy sign for long‑term value creation. However, the lag suggests that the market is still digesting macro‑prudential risks.”
• Ayesha Khan, Senior Research Analyst, Motilal Oswal: “The gap is widening because investors are wary of the high inflation tail risk in India, coupled with a slowdown in manufacturing PMI. As a result, valuations are being pulled back, even though fundamentals remain robust.”

Corporate leaders’ perspective

• Raman Kumar, CFO, Tata Steel: “Our first‑half earnings reflect a steady rebound in steel demand, but the share price hasn’t caught up. We believe this is largely due to global commodity volatility, which keeps market sentiment cautious.”
• M. V. K. Nair, Managing Director, HCL Technologies: “Our operating profit margin improved by 3 % YoY, yet the market has remained static. We think investors are looking for a sustained upside in the tech services space, and the current growth rates, while positive, may not be enough to sway sentiment.”

3. Macro backdrop: PMI, inflation, and policy implications

Manufacturing and services PMI

The Composite PMI for India rose to 52.5 in February, signalling a robust acceleration in manufacturing. However, the services PMI, a key driver of employment, lagged at 50.8, indicating softness in a sector that is highly sensitive to global demand. Portfolio managers point out that this unevenness contributes to a “mixed” risk profile for the equity market.

Inflation dynamics

Consumer price inflation remained near 7 % in March, slightly above the RBI’s 4 %–6 % target corridor. Rising food prices and fuel costs have pressured discretionary spending, which in turn can suppress earnings in consumer‑driven sectors. Even though earnings are holding up, the inflation risk has dampened the valuation premium that investors would otherwise apply.

Policy signals

The RBI’s recent announcement to hold the repo rate at 4.00 % and to continue its liquidity‑support operations is a comfort for corporates, as it keeps borrowing costs low. Nevertheless, the central bank has reiterated that a “tightening” may be necessary if inflation continues to accelerate, thereby adding an element of uncertainty that is reflected in market pricing.

4. Forward look: What to watch for in H2 FY25

1. Earnings trajectory: Companies with a strong earnings momentum in H1 are expected to push through H2, especially those benefiting from digital transformation and green energy initiatives.
2. Valuation realignment: The gap between earnings and share prices could either close – if macro‑economic conditions improve – or widen further if inflationary pressures persist and global rates rise.
3. Policy clarity: Any sign from the RBI regarding the pace of monetary policy will be a key catalyst. A dovish stance could lift market sentiment, whereas tightening could keep valuations subdued.
4. Sector‑specific catalysts: The IT services space might see further upside from a post‑pandemic surge in cloud and AI adoption. In contrast, the banking sector will continue to wrestle with cost‑inflation and regulatory compliance.

5. Bottom line

The MoneyControl article underscores a fundamental reality in the Indian market: corporate earnings have shown resilience, but the market’s willingness to translate those gains into share‑price appreciation remains constrained by macro‑economic uncertainty, policy expectations, and sector‑specific risks. Portfolio managers and corporate leaders alike recognize the need for a cautious approach. They warn that while earnings are a sound indicator of business health, the stock market’s reaction will depend on broader systemic factors that may well keep the earnings‑price gap open for some time. For investors, the key takeaway is to monitor not just corporate performance, but also the macro‑economic signals that shape market sentiment and valuation dynamics in H2 FY25.