- Broad earnings growth hit 10% YoY, just above consensus, but remains uneven across firms.
- Energy, Financials and Metals delivered solid tailwinds, while IT faces AI‑driven headwinds.
- PSU banks are outpacing private peers on credit growth, prompting upward guidance revisions.
- Defence budget up 15% YoY, unlocking a multi‑year capital‑expenditure wave.
- Projected Nifty 50 earnings: 5‑6% FY26, accelerating to 12‑15% FY27, driven by domestic demand and policy reforms.
- Investor focus: selective stock picks, staggered entry, and risk‑managed exposure to volatile sectors.
You missed the quiet profit surge in India’s Q3 earnings—now’s the moment to act.
Why India’s Consolidation Phase Masks Real Growth Opportunities
The Indian market is perched in a consolidation zone, but that calm belies underlying momentum. While macro headlines swing between global rate‑risk and geopolitical sparks, domestic fundamentals—especially corporate profit trends—remain robust. The latest batch of 460 Nifty 500 earnings shows an aggregate profit after tax (PAT) rise of 10% YoY, edging past the 9% consensus. Yet, the distribution is polarized: 235 firms beat estimates, 225 missed. This split signals that the market is rewarding the right stories and punishing the laggards, creating a fertile ground for disciplined stock selection.
Sector Spotlight: Energy, Financials, and Metals Lead the Charge
Energy benefitted from a relatively stable crude price environment in Q3, allowing margin recovery for integrated players. Financials rode a wave of healthy loan growth and steady asset quality, with credit‑to‑deposit ratios improving across the board. Metals, after a year of supply constraints, saw better realisations and volume upticks as global supply‑control measures eased. Together, these three pillars supplied the market’s backbone, offsetting weakness elsewhere. For investors, the takeaway is clear: look for firms with sustainable cost‑pass‑through mechanisms and exposure to these macro‑friendly trends.
IT Sector Under Pressure: AI Disruption and FII Pullback Explained
Foreign Institutional Investors trimmed exposure to Indian IT during Q3, driven by three forces: fading earnings visibility, a longer‑than‑expected deal cycle, and growing anxiety over AI‑induced margin compression. Recent US employment data have dimmed expectations of early Fed rate cuts, making rate‑sensitive IT stocks less attractive. Moreover, AI‑powered tools promise to automate coding, testing, and even ERP implementations, potentially reducing headcount requirements and compressing traditional outsourcing revenue streams.
Nevertheless, the narrative isn’t all doom. Leading firms like Infosys have partnered with Anthropic to embed next‑generation generative AI into client solutions, positioning AI as an enabler rather than a pure disruptor. This strategic pivot suggests that companies with clear AI roadmaps could capture upside as clients shift to outcome‑based pricing. In valuation terms, the sector now trades at a modest discount to historical averages, offering entry points for long‑term investors who can separate the AI‑enabled winners from the laggards.
PSU Banks Outperform: Credit Growth as a Defensive Play
Public Sector Banks (PSUs) have delivered stronger credit growth than private counterparts over the past two quarters, prompting upward revisions for FY26 and FY27 earnings guidance. Their expansive branch networks and focus on priority sector lending have translated into a resilient loan book, even as the broader economy navigates external headwinds. For portfolio construction, PSU banks provide a defensive tilt with upside potential, especially if the RBI’s policy stance remains accommodative.
Defence Spending Boom: A Multi‑Year Tailwind for Select Winners
India’s defence budget jumped over 15% YoY for FY26‑27, allocating ₹2.19 lakh crore to domestic manufacturing across aerospace, naval, and electronics platforms. This fiscal commitment marks the start of a multi‑year capex cycle, benefitting firms with robust order books and proven execution capability. Companies positioned in indigenous platforms, advanced composites, or defence electronics stand to reap consistent order flow, insulated from cyclicality that plagues many other sectors.
Investor Playbook: Bull and Bear Cases for FY26–27
Bull Case: Earnings acceleration to 12‑15% in FY27, fueled by resilient domestic demand, GST rationalisation, and tariff relief from new US‑EU trade agreements. Selective exposure to PSU banks, high‑margin energy players, and defence manufacturers could amplify returns. Within IT, a subset of firms successfully integrating AI could capture premium pricing and higher utilization rates.
Bear Case: Persistent AI disruption compresses traditional IT margins faster than anticipated; global macro volatility drags FII sentiment; and any slowdown in credit growth could hit financials. Overvaluation pockets—particularly in hype‑driven tech stocks—could see sharper corrections.
Strategically, a staggered accumulation approach—starting with high‑quality PSU banks and defence stocks, then adding selectively priced IT names with clear AI roadmaps—balances upside capture with downside protection. Keep an eye on forward‑looking guidance, order‑book visibility, and macro cues such as Fed policy moves and commodity price trends.
In summary, India’s market isn’t overheated; it’s selective. By focusing on sectors with structural tailwinds and applying disciplined stock‑picking, investors can position themselves for the earnings acceleration expected in FY27 and beyond.