GST and tax cuts may lift sentiment, but earnings bar stays high: Vetri Subramaniam

India’s equity market may have benefitted from policy support and improving sentiment on tariffs, but the real test lies in earnings delivery. Vetri Subramaniam, Managing Director and CEO-designate at UTI Asset Management, which manages over $162 billion in assets, cautioned that stretched valuations combined with modest earnings growth could make the next leg of the rally harder.

While GST cuts will help consumption at the margin, he believes the benefit, at only about ₹48,000 crore, adds up to just 0.3% of GDP, and the demand improvement may not be enough to lift earnings growth to double-digit this year.

“Nominal GDP growth was barely at about 8.5% in the June quarter. Nifty 500 revenue growth was just about 6% and profit growth was also about 6–6.5%. Only about 44% of the 500 companies are able to grow earnings by more than 10%,” Subramaniam said in a CNBC-TV18 interview.

While India and the US are among the best-placed economies, they also rank as the two most expensive equity markets in the world. “In the case of India, if you’ve now got earnings growth tracking in single digits, then investors do worry,” he added.

Street forecasts of nearly 17% earnings growth for FY27 appear unrealistic. “I’m a bit sceptical about the fact that in an economy where nominal growth is running at 9%, the corporate sector can actually churn out 17% earnings growth,” he said, calling it a very high bar.

Credit growth remains a more critical driver. With the Reserve Bank of India easing liquidity and rolling back some earlier curbs, there may still be space for one more rate cut. But the bigger test will be whether lending activity accelerates. “Stronger credit growth is what will eventually cause a power up in earnings… retail lending holds the key, not corporate lending,” Subramaniam said.

He is less concerned about tariffs, calling them transactional rather than structural. Any drag on earnings, he argued, would be temporary.

Also Read: GST cuts to lift auto, FMCG, consumer durables earnings by 4-10% next fiscal: Mahesh Patil

For the entire interview, watch the accompanying video

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