Synopsis: Brokerages expect a mixed Q1FY27 earnings season, with financials, telecom, and select sectors driving growth while oil & gas and cement remain under pressure. This follows a strong Q4FY26, where broad-based earnings growth was led by outperforming mid-cap companies.
Brokerage firm Motilal Oswal expects overall earnings for its coverage universe to decline by 3% year-on-year (YoY), marking the weakest performance since September 2020. This drag is primarily driven by large-cap and mid-cap segments, which are projected to see their profit after tax (PAT) fall by 2% and 14% YoY, respectively.
Conversely, the small-cap universe stands out as a major bright spot, with an expected 20% YoY surge in profitability. Despite the mixed bottom-line performance, revenue growth remains robust across the board, with sales expected to rise by 15% to 17% YoY across all market capitalisations.
The Growth Drivers: Financials and Telecom
Overall earnings growth for the quarter will heavily rely on select heavy-hitting sectors. Financials are set to lead the charge, driven by non-banking financial companies (NBFCs) with an estimated 27% profit growth, supported by private banks at 10% and public sector undertaking (PSU) banks at 9%.
The telecom sector is another massive driver, with profits projected to skyrocket 3.3 times YoY due to solid performance from Bharti Airtel and narrowing losses at Vodafone Idea. Other sectors expected to post double-digit growth include building materials (36%), metals (31%), electronics manufacturing services (29%), retail (27%), and consumer durables (27%).
The Laggards: Oil & Gas Drag and Margin Pressures
On the flip side, a sharp decline in the oil and gas sector is heavily weighing down the broader market’s aggregate earnings. Driven by massive combined losses of Rs. 36,400 crore from oil marketing companies (OMCs), the sector’s profits are anticipated to plummet by 94% YoY.
Additionally, the cement industry is bracing for a 13% drop in profitability, while the automobile and healthcare sectors are each expected to see a minor 3% dip. This operational pressure is evident in core margins; excluding financials, the EBITDA margin for Motilal Oswal’s entire coverage universe is expected to contract by 330 basis points to 14.2%, hitting a 15-quarter low.
Top Stock Recommendations
In light of these macro dynamics and shifting policy landscapes, Motilal Oswal advises a stock-specific, bottom-up investment approach. Within the Nifty-50 index, the brokerage’s preferred picks include Bharti Airtel, State Bank of India (SBI), ICICI Bank, M&M, Titan, Shriram Finance, InterGlobe Aviation, HDFC AMC, and BSE.
For investors looking beyond the large-cap Nifty-50 space, top non-Nifty recommendations feature TVS Motor, Radico Khaitan, Indian Hotels, RBL Bank, Dixon Technologies, Coforge, Kirloskar Oil Engines, Arvind, and Delhivery.
Q4 Overall Earnings Growth and Breadth
The Q4FY26 earnings season was strong, with the NIFTY 500 Index reporting 14.3% YoY earnings growth. Growth became more broad-based, as 21 of 29 sectors posted double-digit growth versus 17 sectors in Q4FY25, while only 3 sectors recorded single-digit growth compared to 5 a year ago. Key drivers included GST 2.0, healthy volume growth, improved bank asset quality, and steady power demand.
Market Cap Performance: Mid Caps Outpace
Mid-cap companies significantly outperformed peers, with the NIFTY Midcap 150 Index delivering 40.7% YoY earnings growth, compared with 9.6% for the NIFTY 100 and 8.5% for the NIFTY Smallcap 250. The mid-cap profit share in the NIFTY 500 rose 3.7% YoY to 19.9%, while the large-cap share declined 3.3% to 72.5%.
Banks benefited from strong Corporate and SME loan growth and improving asset quality, while NBFCs saw higher loan growth and better margins. Auto & Auto Components gained from GST 2.0, lower interest rates, and year-end demand, while Metals & Mining benefited from firm commodity prices.
IT Services posted double-digit earnings growth supported by a weaker rupee, though FY27 guidance remained muted. Oil & Gas reported over 25% YoY earnings growth despite margin normalisation, while Pharmaceuticals & Healthcare saw strong growth led by domestic formulations and diagnostics.
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