Earnings have surprised on the upside in the recent past, driven by an improvement in margins, foreign brokerage Nomura said in a research report.

“We think, from hereon, margin levers are limited and growth will be largely dependent on volume growth," it said.

“We are constructive on earnings growth in the medium term supported by government policies and its impact on macro factors. The earnings-to-GDP ratio can continue to improve," it added.

The corporate earnings-to-GDP ratio, which has recorded a consistent decline since the Global Financial Crisis (GFC), has rebounded since FY20. Most segments, particularly the commodity-consuming manufacturing sector, have recorded strong growth since FY20, Nomura said.

In an analysis of a set of 232 companies (referred as BSE 200+), which are part of the BSE 200 index and coverage universe, net earnings recorded 30 per cent y-o-y earnings growth.

Excluding financials, commodities and telecom, where earnings tend to be volatile, the aggregate earnings growth was strong at 22 per cent y-o-y. The earnings momentum has improved in the recent past as the four-year CAGR between 3QFY20-24 is at 32.3 per cent, vs 2.9 per cent between 3QFY16-20.

On aggregate, net earnings were 4 per cent higher than street expectations, the research said.

The year-on-year growth was particularly strong in cement, autos, and infrastructure/transport/logistics (including airline). The growth was muted in IT services and consumer staples, but on aggregate the earnings were ahead of consensus estimates.

The market expects the Nifty 100 index to record 28.4 per cent earnings growth in FY24E aided by strong profits in the oil and gas sector and financials.

For FY25E and FY26E, earnings growth expectations are modest at 12.1 per cent and 13.3 per cent y-o-y, respectively.

Financials will contribute 38 per cent to the incremental earnings of the Nifty 100 over FY24-26E, as per consensus estimates. Earnings growth is expected to moderate across most sectors over the next two years vs FY24 owing to a high base, the research said.

The growth will be driven by increase in volumes as margin levers have already played out. Slowdown in economic growth and higher commodity prices are the key risks to the market's current earnings estimates.

“We think capex, along with domestic manufacturing, will lay the foundation for earnings growth in the medium term," the report said.