India Inc delivers its best in 17 years — but can the rally withstand global shocks?

India Inc has delivered a stellar performance in FY2024-25, clocking its best earnings season in nearly two decades. Robust corporate profitability, strong GDP growth, and a buoyant stock market have placed the Indian economy firmly in the global spotlight. However, the pressing question now is whether this bull run can withstand emerging global headwinds, including geopolitical tensions, rising U.S. interest rates, and a slowdown in China.

Record-Breaking Numbers: The India Inc Scorecard

According to data compiled by market research firms, over 75% of Nifty 500 companies reported better-than-expected earnings in FY25. Aggregate net profits grew by a staggering 27% year-on-year—the highest since FY2008. Several sectors, particularly banking, auto, capital goods, and FMCG, led the surge.

“The breadth of the earnings momentum is exceptional,” said Priya Shah, Equity Strategist at ICICI Securities. “What’s different this time is that even mid and small-cap firms are delivering sustainable profit growth, not just the large caps.”

The Nifty 50 rose over 18% in FY25, with the Sensex breaching the 82,000 mark for the first time in history. The rally was supported by robust domestic liquidity, resilient retail participation, and foreign institutional investor (FII) inflows returning after a cautious 2023.

Growth Engines Powering the Rally

The revival in private capital expenditure, strong consumer demand, and a booming infrastructure sector were key tailwinds. Government-led initiatives such as the PLI (Production-Linked Incentive) schemes, along with policy continuity after the general elections, boosted investor confidence.

Sector-wise Highlights:

• Banks: Posted record earnings driven by strong credit growth, improving asset quality, and expanding net interest margins.

• Auto: Benefited from supply chain normalization and a robust uptick in both rural and urban demand.

• IT: While still recovering from the post-COVID slowdown, top-tier IT firms beat street estimates due to cost efficiencies and new digital contracts.

• FMCG & Consumption: Rural revival and premiumization drove revenue growth, particularly for fast-moving products and staples.

“India is clearly in a sweet spot with strong macro and micro fundamentals,” said Ajay Menon, CEO of Institutional Equities at Motilal Oswal. “Corporate India is now reaping the rewards of structural reforms undertaken over the last decade.”

Cracks Under the Surface?

While the domestic backdrop remains strong, global uncertainties cast a shadow on future earnings growth and market sentiment. The U.S. Federal Reserve has hinted at holding interest rates “higher for longer” due to persistent inflation, which could impact global liquidity flows into emerging markets.

Simultaneously, escalating tensions in the South China Sea, volatile crude oil prices due to Middle East instability, and a sluggish Chinese recovery add further uncertainty.

“If crude crosses $100 and the rupee weakens, India’s import bill and inflation could spike,” warned Radhika Rao, Economist at DBS Bank. “That might force the RBI to hike rates or delay any policy easing, which could dampen demand.”

Foreign Funds Return — But for How Long?

After being net sellers in FY23, foreign investors turned net buyers, pumping in over $28 billion into Indian equities in FY25. This was largely due to India’s consistent economic performance, political stability post-elections, and relative insulation from global shocks.

However, experts caution that these inflows are susceptible to swift reversal.

“The rally could face near-term volatility if U.S. Treasury yields spike again or if the dollar strengthens further,” said Sonal Verma, Chief Economist at Nomura India. “India remains one of the few bright spots globally, but in a risk-off scenario, even quality markets can correct.”

Investor Outlook: What Lies Ahead?

Despite potential global turbulence, many analysts remain bullish on India's long-term growth story. Demographic dividends, digital infrastructure, manufacturing push, and a consumption-driven economy make India a favored destination for capital.

Short-Term Risks:

• Elevated valuations in some pockets, especially midcaps

• Global liquidity tightening

• Geopolitical flare-ups affecting crude and commodities

Long-Term Catalysts:

• Rising formalization and tax buoyancy

• Shift in global supply chains away from China

• Deepening of capital markets and retail participation

“It’s crucial for investors to temper expectations,” said Vivek Mahajan, Head of Research at Aditya Birla Capital. “While the India story is intact, corrections are healthy and provide opportunities to re-enter at better valuations.”

India Inc’s exceptional earnings cycle marks a significant milestone, reflecting a maturing economy and efficient corporates. However, the road ahead demands vigilance. The current rally, though well-supported by fundamentals, remains vulnerable to external shocks. Investors should stay diversified, avoid frothy segments, and adopt a long-term lens.

The coming quarters will test India’s resilience not just as an investment destination but as a stable economic force in a volatile world.