India Earnings: Investor Focus Shifts After Trade Concerns Ease

Indian equity markets experienced a significant rally this week, bolstered by the finalization of new trade agreements with the United States, shifting investor focus back to the country’s earnings potential. The gains, which saw investors collectively become richer by Rs 12.10 lakh crore – approximately $146 billion – on Tuesday alone, represent a notable turnaround after a period of uncertainty and underperformance.

Trade Deal Removes Key Overhang

The benchmark BSE Sensex closed at February 4th at 83,739.13, a jump of 2.54 percent, while the NSE Nifty climbed 2.55 percent to settle at 25,727.55. The total market capitalization of BSE-listed companies increased by Rs 12,10,877.45 crore to Rs 4,67,14,754.77 crore (USD 5.16 trillion). The surge was largely attributed to the India–US trade deal, which reduces reciprocal tariffs on Indian goods to 18 percent, alleviating concerns about trade-related headwinds. As one market participant noted, the agreement removed a “major overhang for investors.”

Piyush Goyal, India’s Minister of Commerce and Industry, described the deal as “historic,” highlighting protections for key sectors like dairy and agriculture. The reduction in tariff uncertainty has improved sentiment both domestically and internationally, contributing to the broad-based rally observed across the market.

Earnings Growth Now the Focus

While the trade deal provided an immediate boost, the longer-term outlook for Indian equities now hinges on earnings growth. After a disappointing 2025, where India underperformed relative to other emerging markets, investors are keenly awaiting signs of a recovery. According to Timothy Moe, Chief Asia Pacific Equity Strategist at Goldman Sachs, 2026 could see a comeback driven primarily by improved earnings rather than further valuation expansion.

Goldman Sachs forecasts earnings growth of around 15% for the MSCI India index in 2026, a level Moe believes could position India as a moderate outperformer within the broader emerging market landscape. Currently, India is trading at approximately 22 times forward earnings, which, while expensive, is considered defensible given the country’s long-term growth prospects. However, Moe emphasizes that future returns are likely to be driven by earnings delivery, not further increases in valuation multiples.

Sectoral Opportunities and Foreign Investor Sentiment

Several domestic-facing sectors are expected to contribute to this earnings growth. Goldman Sachs highlights financials, benefiting from a recovery in the private credit cycle, as well as the automotive industry, mass consumption, staples, defence, consumer durables, and select oil marketing companies. These “bottom-up sector assumptions” underpin the firm’s optimistic 15% earnings growth target.

The shift in focus to earnings comes after a period of reduced foreign investment. Throughout 2025, foreign investors scaled back their exposure to Indian equities as valuations rose and earnings growth failed to keep pace. India, once heavily favored in emerging market portfolios, became underweight for many global investors. A sustained earnings recovery is seen as crucial to attracting renewed foreign inflows.

Broader Market Participation

The rally wasn’t limited to large-cap stocks. The trade deal spurred strong buying interest in export-oriented sectors, including textiles, leather, gems and jewellery, auto ancillaries, marine exports, and specialty chemicals. Within the Sensex, Adani Ports emerged as the top gainer, jumping 9.12 percent, followed by Bajaj Finance, InterGlobe Aviation, Power Grid, Sun Pharma, Bajaj Finserv, and Reliance Industries. Tech Mahindra and Bharat Electronics were the only stocks in the 30-share index to experience losses.

Navigating a Complex Global Landscape

Despite the positive momentum, the recovery may be “back-loaded,” according to analysts, as investors demand concrete evidence of earnings delivery. Attention currently remains focused on North Asian markets, which are benefiting from the artificial intelligence (AI)-led rally. This suggests that India’s comeback will require sustained performance and a convincing demonstration of its earnings potential to regain investor confidence and secure a larger share of global capital flows.

The recent trade agreement provides a crucial foundation for this recovery, but the ultimate success will depend on Indian companies’ ability to translate economic expansion into tangible earnings growth, a historical strength that has, until recently, been somewhat muted. The coming quarters will be critical in determining whether India can regain its position as a leading emerging market performer.