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Interim review: A beat driven by Commodities; Mid-Caps outperform

Nifty witnesses marginal EPS upgrades

* In this report, we present our interim review of the 2QFY26 earnings season.

* As of 31st Oct’25, 151/27 companies within the MOFSL Universe/Nifty have announced their 2QFY26 results. These companies constituted i) 65% and 64% of the estimated PAT for the MOFSL and Nifty Universe, respectively; ii) 42% of India's market capitalization; and iii) 69% weightage in the Nifty.

* The earnings of the aforesaid 151 MOFSL Universe companies grew 14% YoY (in line with our estimate of 9% YoY) in 2QFY26. Overall earnings growth was driven by O&G (OMC’s profit up 9x YoY), which grew 79% YoY, Technology (8% YoY), Cement (147% YoY), Capital Goods (17% YoY), and Metals (7% YoY). These five sectors contributed 86% of the incremental YoY accretion in earnings so far.

* Barring global commodities (i.e., Metals and O&G), the MOFSL Universe posted a 6% YoY earnings growth vs. our estimate of 2%. In contrast, ex-Financials, the earnings for the MOFSL Universe grew 25% YoY (vs. an est. of +18% YoY).

* Earnings of the 27 Nifty companies that have declared results so far have grown 5% YoY (vs. est. of +6% YoY), driven by HDFC Bank, Reliance Industries, TCS, JSW Steel, and Infosys. These five companies contributed 122% to the incremental YoY accretion in earnings. Conversely, Coal India, Axis Bank, Eternal, HUL, and Kotak Mahindra Bank dragged Nifty earnings lower. Seven companies within the Nifty reported lower-than-expected profits, while five recorded a beat, and fifteen registered in-line results.

* Large-caps and mid-caps deliver better than estimate, while small-caps’ results are in line: Within our MOFSL Universe, large-caps (49 companies) posted an earnings growth of 13% YoY – similar to the overall universe. Mid-caps (47 companies) have extended theirstreak of the past three quarters and yet again delivered the highest growth at 26% YoY (vs. our est. of 19%). Multiple mid-cap sectors clocked impressive growth, including Technology, Cement, Metals, PSU Banks, Real Estate, and NBFC – Non-Lending. In contrast, small-caps (55 companies) continued to experience weakness in many sectors, with Private Banks, NBFC - Non-lending, Technology, Retail, and Media posting a YoY earnings decline. The small-cap earnings were up 3% YoY (our est. of +4%), with 69% of the coverage universe exceeding/meeting our estimates. Conversely, within the large-cap/midcap universes, 84%/77% of the companies exceeded/met our estimates.

* The Upgrade-to-Downgrade ratio at 0.7x: Until now, 29/42 companies within the MOFSL Coverage Universe have reported an upgrade/downgrade of more than 3% each, leading to an adverse upgrade-to-downgrade ratio for FY26E. The EBITDA margin of the MOFSL Universe (ex-Financials) expanded 170bp YoY to 16%, owing to margin expansion in Oil & Gas, Technology, Cement, Utilities, and Chemicals. However, the margin saw a contraction in the Telecom, Healthcare, Retail, Real Estate, and Media sectors.

* Nifty EPS raised marginally for FY26E/FY27E: The Nifty EPS for FY26E was raised marginally to INR1,101 (from INR1,096) due to upgrades in HDFC Bank, Tata Steel, Ultratech Cement, Dr. Reddy’s Labs, and Shriram Finance. The FY27E EPS was raised by 0.3% to INR1,278 (from INR1,274).

* MOFSL Universe estimated PAT experienced an upgrade of 1.2%/0.4% for FY26E/FY27: MOFSL Universe witnessed a rise of 1.2% for FY26, led by Oil & Gas, Cement, PSU Banks, Healthcare, and Automobiles. The MOFSL Large-cap Universe experienced an upgrade of 1% for FY26, while the MOFSL Mid-cap Universe stood out with a 3.7% earnings upgrade for FY26. In contrast, the small-cap universes experienced earnings cuts of 4.3% for FY26.

Key result highlights: 2QFY26

* As of 31st Oct’25, 27 Nifty stocks reported a sales/EBITDA/PBT/PAT growth of 9%/8%/5%/5% YoY (vs. est. of +7%/8%/5%/6%). Of these, 5/7 companies surpassed/missed our PAT estimates, each by more than 5%. On the EBITDA front, 6/3 companies exceeded/missed our estimates during the quarter.

* For the 151 companies within our MOFSL Universe, sales/EBITDA/PBT/PAT were +8%/13%/13%/14% YoY (vs. est. of +5%/+8%/+7%/9%). Excluding Metals and O&G, the MOFSL Universe companies recorded a sales/EBITDA/PBT/PAT growth of 10%/5%/4%/6% YoY (vs. est. of +9%/3%/1%/2%) in 2QFY26 so far.

* Summary of the 1QFY26 performance thus far: 1) Banks: Private banks delivered better-than-expected 2QFY26 results, supported by better NIM performance and a healthy pickup in credit growth, while PSU banks also reported improved outcomes. 2) Automobile: The 2QFY26 results so far in Automobiles have largely been ahead of our estimates for OEMs, while for Auto Ancs, it has been a mixed bag. Festive season demand across segments has been healthy, and a pick-up in demand is expected in H2. 3) Consumer: Staples companies witnessed stable demand trends; however, the GST transition and an extended monsoon period weighed on overall performance during the quarter. 4) Metals: During 2QFY26, ferrous companies across the board reported NSR decline QoQ, led by heavy monsoon, but stood higher than our projection, leading to an earnings beat during the quarter. 5) Oil & Gas: The 2QFY26 results for the Oil & Gas sectors so far indicate a strong performance, primarily driven by OMCs. OMCs: All three OMCs delivered a significant beat on EBITDA estimates, driven by a 44-66% beat on our GRM estimates and strong marketing margins. RIL's 2QFY26 consolidated EBITDA increased 7% QoQ (+17% YoY) to INR459b. 6) Technology: The IT services companies offered some respite on already beaten-down expectations in 2QFY26, with median revenue growing 1.9% QoQ CC. Broadly, all large-cap companies managed to beat/meet revenue estimates. However, management commentary indicated that demand remains subdued, with no clear signs of a new spending cycle emerging.

* View: The 2QFY26 earnings have generally been in line, with the intensity of earnings cuts moderating. Although Indian equities have registered a lackluster performance over the past one year, we continue to highlight that the Indian markets now appear to be in a healthy state vs. last year. The earnings cycle is bottoming out, with growth expected to accelerate into double digits. Valuations are reasonable, with the Nifty trading at 21.4x, near its LPA of 20.8x. Any signs of earnings growth acceleration should support valuation expansion. We believe that the cavalry of measures by the government will help reset the trajectory of corporate earnings as domestic reforms are expected to continue. Additionally, any resolution of the tariff stalemate will be a key external catalyst, in our opinion. Our model portfolio is more aligned towards domestic names, driven by expectations of a domestic economic rebound. While SMIDs trade at expensive valuations, we continue to focus on this segment, selectively picking high-conviction SMID names in our portfolio.

In-line performance, anchored by O&G

* Aggregate performance of the MOFSL Universe: sales/EBITDA/PBT/PAT were +8%/13%/13%/14% YoY (vs. est. of +5%/+8%/+7%/9%). Excluding Metals and O&G, the MOFSL Universe companies recorded a sales/EBITDA/PBT/PAT growth of 10%/5%/4%/6% YoY (vs. est. of +9%/3%/1%/2%) in 2QFY26 so far.

* Nifty-50 companies that surpassed/missed our estimates: HDFC Bank, Dr. Reddy’s Labs, Bharat Electronics, Shriram Finance, and TCS exceeded our profit estimates. Conversely, Axis Bank, HDFC Life Insurance, SBI Life Insurance, Coal India, Reliance Industries, Tech Mahindra, and Eternal missed our profit estimates for 2QFY26.

* Top FY26E upgrades: HDFC Bank (4.2%), Shriram Finance (4.5%), Ultratech Cement (3.2%), and Dr. Reddy’s Labs (2.9%).

* Top FY26E downgrades: Eternal (-37.9%), HDFC Life Insurance (-10.7%), NTPC (- 9.2%), Coal India (-6.3%), Reliance Inds (-3.5%), and SBI Life Insurance (-3%).

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