India Inc’s FY25 Profit Growth Outpaces GDP 3x, Midcaps and Smallcaps Lead: Ionic Wealth Report

India Inc’s FY25 Earnings Set to Soar, Beating GDP Growth by 3x: Ionic Wealth

India’s corporate earnings growth is set to significantly outpace the country’s economic expansion in FY25, with midcap and smallcap companies leading the charge, according to a recent report by Ionic Wealth. The report highlights a 15–18% profit growth forecast for India Inc. in FY25, nearly three times higher than the projected real GDP growth of around 6%, signaling robust corporate resilience despite macroeconomic headwinds.

Midcaps and Smallcaps Shine Bright

The Ionic Wealth report emphasizes that the earnings growth is being driven not just by large-cap stalwarts but by a broad-based performance across the board—particularly among midcaps and smallcaps. According to the report, the Nifty Midcap 150 and Smallcap 250 indices have witnessed strong earnings upgrades, bolstered by sectoral tailwinds in manufacturing, capital goods, auto ancillaries, and financial services.

“The broader market is in a sweet spot as many mid and smallcap companies are seeing operating leverage benefits and improved return ratios. These companies are no longer just growth stories—they are profit powerhouses,” said Sahil Mehta, Lead Equity Strategist at Ionic Wealth.

The report noted that earnings growth in midcap and smallcap companies is expected to outpace that of largecaps by nearly 500–700 basis points in FY25, supported by favorable demand, margin expansion, and improved corporate balance sheets.

Sectoral Contribution: Capex Cycle and Credit Boom Drive Earnings

The research points to a cyclical upturn in domestic capital expenditure and credit growth as key contributors to the robust earnings trajectory. Sectors such as capital goods, real estate, auto, consumer durables, and banking have witnessed both revenue expansion and margin recovery.

“We’re seeing a synchronized recovery in both public and private capex. The government's infrastructure push is now being complemented by a revival in private sector investment, especially in manufacturing and renewables,” said Niyati Deshmukh, Economist at Ionic Wealth.

In addition, financials—especially public sector banks and NBFCs—are witnessing strong bottom-line growth aided by stable asset quality and improving net interest margins.

Export-Oriented Companies Regain Footing

While domestic cyclicals remain the primary driver of growth, the report also underscores a bottoming out in export-oriented sectors such as IT services, chemicals, and textiles. As global demand shows signs of stabilization, earnings visibility in these sectors is expected to improve in the second half of FY25.

“IT earnings, which were a drag in FY24, are likely to turn a corner in H2FY25 as client budgets normalize and order inflows improve,” said Varun Malhotra, Research Head at Ionic Wealth.

Market Valuation and Risk Considerations

Despite the upbeat earnings outlook, Ionic Wealth warns that the broader market is trading at elevated valuations, particularly in the midcap and smallcap space. The Nifty Midcap 150 is currently trading at a forward P/E of around 26x, while the Smallcap 250 is near 30x—both well above historical averages.

“The premium valuations are a reflection of strong earnings delivery, but they also embed high expectations. Any earnings disappointment or policy misstep could lead to sharp corrections,” Mehta cautioned.

The report highlights key risks including geopolitical tensions, elevated oil prices, and a potential slowdown in global trade. Additionally, high retail participation in smallcap stocks may amplify volatility.

Investor Outlook: Earnings-Led Rally or Valuation Risk?

For investors, the key question is whether earnings growth can sustain the current market rally or if stretched valuations will trigger a correction. Ionic Wealth advises a selective bottom-up approach, favoring companies with strong cash flows, pricing power, and low debt levels.

“FY25 is likely to be a stock-picker’s market. Quality will matter more than ever, and investors should avoid getting swayed by momentum alone,” said Deshmukh.

The report also recommends staying overweight on domestic themes such as infrastructure, financials, and manufacturing while being cautiously optimistic on global cyclicals like IT and pharma.

India Inc’s strong earnings momentum, led by a revival in capex and improved operating metrics across mid and smallcaps, paints a promising picture for FY25. While the divergence between earnings and GDP growth reflects the efficiency gains and resilience of the corporate sector, elevated valuations warrant caution. As the market navigates macro and micro shifts, investors would do well to focus on fundamentals and risk-adjusted returns.