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India Inc closed FY25 with a stronger than expected earnings season. Q4FY25 corporate earnings concluded on a strong note, with 13 sectors surpassing expectations and delivering broad-based outperformance across key aggregates. Q4FY25 profits for the MOFSL Universe grew 10% YoY versus expectations of just 2%. While Metals, Capital Goods, and PSU Banks led sectoral beats, the broader narrative was supported by steady demand recovery and margin resilience. However, despite the strong finish, earnings upgrades continue to trail downgrades, and overall profit momentum remains cautious. The top 5 stocks account for ~137% of the incremental profit.  Among Nifty constituents, 30% exceeded our PAT estimates, while 26% missed our estimates.

Metals and Capital Goods drive the upside

* The Metals sector delivered 45% YoY PAT growth, aided by easing imports, infrastructure recovery, and a favourable base effect.

* Capital Goods posted 14% YoY growth, supported by operating leverage, higher execution, and margin expansion in mid-cap names.

Banking sector shows mixed trends

* PSU Banks reported 9% YoY PAT growth, while large private banks saw a mild NIM recovery driven by improved CASA mix and lower drag from deposit repricing.

* Credit growth improved sequentially, but pressure on net interest margins in PSUs persisted.

Autos maintain steady performance

* The Auto sector posted ~6% YoY revenue growth, broadly in line with estimates. Auto OEMs grew 5% YoY, while ancillary companies outpaced with 8% growth.

* Industry bodies project FY26 volume growth in low to mid-single digits: PVs (2–4%), CVs (mid-single digits), and 2Ws (~6%). Momentum is expected to be driven by new launches and replacement demand.

Consumer and IT remain subdued

* FMCG companies posted 6.2% revenue growth; however, margin pressures continued due to flat volumes and muted urban demand.

* IT Services revenue declined 0.7% QoQ amid global macro uncertainties. FY26 guidance diverged, with HCLT remaining most optimistic (2–5% growth), while peers issued cautious outlooks.

Midcaps emerge as surprise outperformers

* Midcaps saw broad-based PAT growth of 19% YoY, with EMS (+70%), PSU Banks (+39%), and Mid-cap Metals (+84%) leading.

* The quality and diversity of growth reaffirm midcaps’ structural potential in India’s evolving market cycle.

Our View

4QFY25 earnings beat expectations, but forward earnings revisions remain weak, with downgrades outpacing upgrades. Nifty-50’s EPS grew modestly by 1% in FY25, after a strong 20%+ CAGR from FY20-24. The market has bounced back sharply in the past two months, fully erasing its YTD losses. Currently, Nifty is up 4.7% in CY25 YTD and trades at 21.8x FY26E earnings, close to its long-term average of 20.7x. Despite near-term volatility from global macro issues, trade tensions, and earnings concerns, India’s medium-to-long-term growth story remains solid.

Mid-Caps Steal the Show with 19% Profit Growth

Q4FY25 marked a significant shift in market leadership, with midcaps outshining both large and small caps on earnings. The Motilal Oswal mid-cap universe posted 19% YoY PAT growth—nearly double the growth seen in large caps and far ahead of small-cap performance. This quarter also saw a wider distribution of growth across sectors, indicating a maturing of the midcap opportunity set.

Metals, PSU Banks, and EMS shine

* Mid-cap Metals posted 84% PAT growth, contributing 37% of the incremental YoY profit.

* PSU Banks delivered 39% growth, accounting for nearly 50% of total mid-cap PAT gains.

* EMS continued its growth streak with a 70% YoY jump, reflecting strong order books and execution tailwinds.

Diversified strength across sectors

* Capital Goods (+30%), NBFCs (+23% lending, +36% non-lending), and Mid-cap IT (+12%) all outperformed estimates.

* Unlike previous quarters, growth was less concentrated and more evenly distributed, improving market breadth.

Upgrade-to-downgrade ratio improves

* The midcap space saw a favourable upgrade cycle this quarter, reversing the downgrade-heavy trend seen in the past three quarters.

* This signals improved earnings visibility and greater investor confidence.

Market implications

Midcaps are no longer just a beta play—they are increasingly becoming alpha generators. Their ability to adapt, diversify, and scale across core economic themes like electrification, infrastructure, and financial inclusion reinforces their relevance in long-term portfolios.

Our View

Q4FY25 has strengthened the structural case for midcaps.Overall earnings have surpassed estimates—a positive shift after three quarters of broad misses. Notably, the mid-cap segment emerged as a surprising standout, highlighting its key role in producing future growth leaders and expanding the market’s investable universe.

Small-Caps Struggle Amid Broad-Based Profit Decline in Q4

The small-cap segment saw a sharp earnings miss in Q4FY25, with overall PAT down 16% YoY—significantly worse than the already muted expectations. Financials, retail, and discretionary consumption dragged down performance, while only a few sectors like EMS and Capital Goods delivered meaningful gains.

NBFCs and Retail lead the decline

* NBFCs reported a 68% YoY fall in PAT due to asset quality pressures and rising funding costs.

* Retail saw a 34% drop in earnings as high input costs and slower footfall impacted margins.

Autos, Real Estate, and Oil & Gas disappoint

* Small-cap Auto and Ancillaries fell 23% in earnings, affected by weak volumes and pricing pressures.

* Real Estate PAT declined 36% YoY; execution delays and cost overruns continued.

* Oil & Gas names (ex-OMCs) posted a 51% PAT decline, hurt by weaker refining margins.

Isolated bright spots

* Capital Goods posted a 49% YoY PAT rise, beating large and mid-cap peers due to margin improvement.

* EMS delivered 52% PAT growth, continuing to buck the trend within the segment.

Outlook
Small-caps remain a barbell segment—capable of both strong rebounds and deep corrections. Earnings volatility remains high, and stock selection is critical. Investors should focus on quality names with sustainable business models, visibility, and operating leverage.

MOFSL Universe Delivers 10% Q4 Earnings Growth, Despite Mixed Sectoral Trends

Context
The Motilal Oswal coverage universe of 297 companies posted a robust 10% YoY PAT growth in Q4FY25, ahead of consensus estimates. Of the 297 companies under coverage, 122 exceeded our profit estimates, while 87 posted a miss, and 88 were in line. This quarter marked a turnaround from the prior three quarters of earnings disappointments. The beat was driven by select sectors, but the aggregate trend reflects underlying strength in India Inc.’s earnings engine.

Strong performance across sectors

* Metals (+45%), Capital Goods (+14%), Healthcare (+17%), and PSU Banks (+9%) were key outperformers.

* Even within subdued sectors like FMCG and IT, a few large-cap names managed to hold the line on margins.

Favourable beat-miss ratio

* 41% of companies in the MOFSL Universe beat PAT estimates, while 29% missed.

* This is a positive shift from the trend of widespread misses seen in previous quarters.

Midcaps lead, small caps lag

* Midcaps posted 11.6% FY25 PAT growth; small caps declined 17.3%.

* Large caps grew 4.6%, providing stability amid broader volatility.

Upgrade-to-downgrade ratio improves

* The ratio improved to 0.6x in 4QFY25 from 0.3x in 3QFY25.

* FY26/FY27 EPS estimates were trimmed by 1.9% and 1.1%, respectively—showing cautious optimism.

FY26E earnings highlights

* The MOFSL Universe is likely to deliver sales/EBITDA/ PAT growth of 4%/12%/14% YoY in FY26. The Financials, Metals, and Oil & Gas sectors are projected to be the key growth engines, with 11%, 25%, and 13% YoY earnings growth, respectively.

Our View

The MOFSL Universe continues to offer a high-quality representation of India’s evolving equity landscape.While macro risks persist, the core earnings trajectory remains healthy. We maintain a constructive stance on sectors with visibility, pricing power, and demand resilience

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