Whalesbook
Widespread Earnings Revisions
Nifty earnings downgrades accelerated in April, reversing modest upgrades seen in March. JM Financial reported that FY26 and FY27 earnings estimates fell month-on-month by 1.2% and 1.6%, respectively.
Over the past year, the Nifty 50 has seen negative returns. Meanwhile, earnings per share (EPS) estimates for FY26 and FY27 have been cumulatively cut by 7.3% and 5.7% respectively. This widening gap between market valuations and earnings momentum is becoming a key concern for investors.
Sectoral Divergence
The earnings revisions were broad-based, with 33 out of 50 Nifty companies, or 66%, seeing FY27 EPS estimates reduced in April. Cement and insurance sectors faced universal downgrades. Banking and automobile sectors saw four out of five companies downgraded, while six out of eight consumer companies also experienced cuts.
Aviation recorded the steepest monthly downgrade at 16.7% for FY27 earnings estimates, followed by cement (-6.2%) and insurance (-4.8%). Conversely, metals, mining, IT services, and NBFCs were among the few pockets showing earnings upgrades.
Banking Sector Dominance
Despite broad-based cuts, banks remain the primary engine for Nifty earnings, accounting for nearly 37% of FY27 profit after tax estimates. However, even this sector is not immune, with major lenders like HDFC Bank, ICICI Bank, State Bank of India, and Kotak Mahindra Bank all reporting month-on-month estimate reductions. This pressure on banks comes amidst moderating credit growth and slowing margin expansion.
Valuation Concerns
The earnings downgrade cycle is unfolding while Nifty valuations remain stretched, trading above long-term averages. The index currently trades at approximately 21.7 times FY26 earnings and 18.6 times FY27 earnings.
This reliance on future recovery, combined with ongoing downgrades, makes sustaining premium valuations increasingly challenging. The market's support increasingly depends on a smaller group of sectors as earnings cuts spread across heavyweight domestic-facing industries.