India Inc Posts First Earnings Upgrade in Five Quarters, Mid‑Caps Lead Gains

After four straight quarters of profit cuts, India Inc has finally seen its overall earnings estimates go up, thanks mainly to mid‑ and large‑cap companies.

Why the Upgrade Matters

Motilal Oswal raised its FY26 profit‑after‑tax (PAT) forecasts for its covered stocks by 2% in the latest quarter. This is the first upward revision since the June 2024 results season, ending a streak of cuts that added up to 15% over the previous four periods.

Sector Winners and Losers

Big‑ticket sectors have received the biggest boost, while a few have been trimmed.

• Upgrades: Oil & gas (+13%), telecom (+30%), PSU banks (+5%), insurance (+3%), non‑lending NBFCs (+2%).
• Downgrades: Utilities (‑8%), autos (‑3% overall, but +3% when Tata Motors is excluded), healthcare (‑3%).
• Small‑cap stress: Average FY26 PAT estimates for small caps fell by 5.5%.

Growth Outlook

The broker expects corporate earnings to grow in the mid‑teens despite India’s GDP staying below 10%.

• FY26/FY27 earnings growth forecast: 12%/15% for the Nifty 50, 15%/16% for the broader coverage universe.
• Profit growth is driven more by factors like leverage, pricing power, and cost trends than by overall economic growth.
• Historically, GDP explains only about 20% of Nifty 50 profit growth, so lower GDP does not automatically mean lower earnings.

Broker’s Positioning and Preferred Themes

Motilal Oswal stays positive on Indian equities and expects the market to recover its 2025 under‑performance.

• Valuation: Nifty 50 trades at a forward P/E of 21.3×, close to its long‑term average of 20.8×.
• Overweight sectors: Diversified financials, automobiles, capital goods, IT services, telecom.
• Underweight sectors: Energy, metals, utilities, staples.
• Top large‑cap picks: Bharti Airtel, ICICI Bank, SBI, Infosys, Larsen & Toubro, M&M, Titan, Bharat Electronics, IndiGo, TVS Motor, Tech Mahindra, Indian Hotels.
• Top mid‑cap picks: Swiggy, Dixon Technologies, Suzlon, Jindal Stainless, Coforge, Kaynes Technology, Radico Khaitan, V‑Mart, VIP Industries.

What This Means for Investors

Mid‑cap and large‑cap stocks are seeing renewed confidence, while small‑cap names may still face pressure. Keeping an eye on sector‑specific revisions can help you spot opportunities.

Disclaimer

Remember, this is perspective, not a prediction. Do your own research and consider your risk tolerance before making any investment decisions.