The current earnings season is shaping up to be the weakest for BSE Sensex companies in the last five years. The benchmark index’s trailing earnings per share (EPS) has risen just 1.3 percent year-on-year so far—the lowest increase since April 2021, when Covid-19 lockdowns caused earnings to contract.
This marks a significant reversal from the double-digit growth experienced by index companies until a year ago. In February 2025, the index EPS was up 22.6 percent year-on-year, and it had grown at an average of 16.1 percent over the past five years.
The index underlying EPS closely mirrors the combined trailing 12-month net profit of India’s top 30 companies. Eight of those 30 companies have reported their quarterly results for the October-December period (Q3FY26), and the overall numbers are underwhelming. The combined net profit of these eight companies declined 0.4 percent year-on-year in Q3FY26.
On a trailing 12-month basis, the combined net profit of these companies was up 7.7 percent year-on-year in Q3FY26. However, excluding Reliance Industries—which benefited from a large one-time profit from the sale of its minority stake in Asian Paints in Q1FY26—the combined trailing 12-month net profit of the remaining seven companies rose by only 3.6 percent in Q3FY26.
Analysts suggest this divergence between index earnings, valuation, and index movement is creating instability. Over the past year, the index value and valuation ratio have increased even as earnings momentum has weakened.
The index underlying EPS is calculated using the reported trailing price-to-earnings multiple and the index value at the end of the day. On Tuesday, the index closed with a trailing price-to-earnings multiple of 22.59, the lowest in four months, but still nearly 11 percent higher than the 20.58 recorded at the end of February 2025. The index was up 12.23 percent during that period, settling at 82,180.5 on Tuesday.
The index price-to-book value ratio has also increased, rising nearly 17 percent in the past 12 months from 3.76 at the end of February 2025 to 4.41 on January 21, 2026, making the Indian equity market more expensive.
Analysts attribute the recent sell-off by foreign portfolio investors (FPIs) to a combination of weak earnings growth and relatively high valuations. “The continued sell-off by FPIs in Indian equities, and the resulting decline in the market, can be directly linked to poor earnings growth,” says Dhananjay Sinha, co-head research and equity strategy at Systematix Institutional Equity. “Besides, the Indian equity market remains one of the most expensive globally, further reducing the incentive for FPIs to stay invested in Indian equities.”
FPIs have been consistent sellers during the current results season, withdrawing $2.86 billion from Indian equities in January so far. This follows a net withdrawal of $18.8 billion from Indian equities during the calendar year 2025.
Sinha anticipates a challenging earnings outlook for Indian companies, citing weak domestic demand and disruptions in international trade caused by US trade wars. He expects the combined earnings of India’s top-listed companies to grow at a compound annual growth rate of just 6 percent over the next three years.
Rupee slips to fresh low vs dollar; India mcap below $5 trn
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