India Inc is expected to report a modest earnings performance for the June quarter despite fairly good results from companies in the cement, healthcare services, renewable energy and telecommunications sectors.
While the aggregate financials will get a boost from a sharp rebound in the profits of oil marketing companies (OMC), the relatively weak numbers from the automobiles, consumer staples, banking, gas utilities and transportation sectors, will leave the Q1 FY26 results just about satisfactory. The Street doesn’t rule out the possibility of a few players in the consumer durables, utilities and IT services spaces managing only a single-digit rise in profits.
According to analysts at ICICI Securities, the profits of OMCs will be driven by better gross refining margins and marketing margins.
India Inc’s Mixed Bag Q1
Business updates present a mixed picture. Narratives from Avenue Supermarts, Trent and also from Dabur were disappointing but those from Godrej Consumer and Marico were encouraging. Titan announced that its consumer business grew 20% in the June quarter. HDFC Bank reported an impressive deposit growth of 16.2% y-o-y but loan growth was weak at 7% y-o-y. Kotak Mahindra Bank reported strong growth in advances of 14% and a rise in total deposits of 14.6%.
Kotak Institutional Equities (KIE) estimates adjusted net profits for the Nifty-50 set of companies to grow by just 4.1% y-o-y. For the BSE-30 universe the rise would be slightly higher at 6.1% y-o-y.
While urban demand remains subdued, the FMCG pack has benefitted from an improvement in rural demand. Analysts at Nomura believe sales of consumer staples firms could have grown at about 6.7% y-o-y — above the 8-quarter average of 4.6% y-o-y — with a slight improvement in volumes and stable prices. “We expect the summer portfolio across companies to be impacted on the back of an early monsoon, they wrote in a note.
IT Services Outlook remains cautious
The outlook for India’s IT services firms is cautious with revenues expected to be weak and Ebit margins broadly stable for large companies. Analysts at HSBC Research noted they expect large companies to report flat to slightly positive growth in revenues of 0-1% quarter-on-quarter in constant currency terms. “We expect deal momentum to improve from Q2 as some of the slipped deals in Q4FY25 and even in Q1FY26 may come through going forward,” they wrote. Analysts at Morgan Stanley have cautioned that growth would continue to remain sluggish as discretionary spending has not improved.
The Street is bracing for a subdued quarter for banks as it would see the full impact of 50 bps cut in policy rates. Also, the loan growth has been sub-10% for the quarter. Analysts at Motilal Oswal expect a double-digit decline in net interest margins for all banks under the brokerage’s coverage. “Asset quality will remain broadly stable,” they say adding the retail and microfinance segments may see elevated provisioning.
The June quarter has been a difficult one for the auto space characterised by low-to-mid-single-digit y-o-y increases in the production volumes of cars, two-wheelers and commercial vehicles. As such, top line growth for the sector (excluding Tata Motors) could come in at about 6% y-o-y. “We expect Ebitda margin to decline by 260 bps y-o-y (excluding Tata Motors), mainly led by higher discounts and commodity and headwinds, advertisement and promotional spends,” analysts at KIE wrote.
India Inc’s operating profits grew at 9.9% in 2024-25, the slowest pace in four years. The increase in net sales was just 6.2% (for a sample of 3,035 companies), the second consecutive year of single-digit top line growth. Excluding banks and financials, top line growth for a sample of 2,361 companies, was 4.9%.