India Strategy: Resilient quarter poised for gains as Fiscal & Monetary measures kick in by Motilal Oswal Financial Services Ltd
Modest growth amid global headwinds | Nifty EPS estimate experiences a cut
* In this report, we present our interim review of the 1QFY26 earnings season.
*As of 2 nd Aug’25, 184/38 companies within the MOFSL Universe/Nifty have announced their 1QFY26 results. These companies constituted i) 67% and 77% of the estimated PAT for the MOFSL and Nifty Universe, respectively; ii) 49% of India's market capitalization; and iii) 84% weightage in the Nifty.
* The earnings of the aforementioned 184 MOFSL Universe companies grew 7% YoY (in line with our estimate of 6% YoY) in 1QFY26. Overall earnings growth was driven by BFSI (4%), Technology (7% YoY), Oil & Gas (7% YoY), Cement (47% YoY), and Utilities (13% YoY). These five sectors contributed 71% of the incremental YoY accretion in earnings so far.
* Excluding financials, the earnings for the MOFSL Universe grew 8% YoY (in line); whereas, barring global commodities (i.e., Metals and O&G), the Universe reported a 7.4% YoY earnings growth vs. our estimate of 5.7%.
*Earnings of the 38 Nifty companies that have declared results so far have grown 7.5% YoY (vs. est. of +5.7% YoY), driven by RIL, HDFC Bank, ICICI Bank, JSW Steel, Bajaj Finance, L&T, and M&M. These seven companies contributed 100% to the incremental YoY accretion in earnings. Conversely, Coal India, IndusInd Bank, HCL Tech, Kotak Mahindra Bank, Axis Bank, and Eternal dragged Nifty earnings lower. Seven companies within the Nifty reported lower-than-expected profits, while fourteen recorded a beat and seventeen registered in-line results.
* Large-caps and mid-caps deliver in-line results, while small-caps’ results are below our estimate: Within our MOFSL coverage universe, large-caps (56 companies) posted an earnings growth of 7% YoY – similar to the overall universe. Mid-caps (54 companies) have extended their streak of the past two quarters and yet again delivered the highest growth at 12% YoY (vs. our est. of 8%). Multiple mid-cap sectors clocked impressive growth, including Technology, Capital Goods, PSU Banks, Healthcare, Cement, Metals, and Utilities. In contrast, small-caps (74 companies) continued to experience weakness and a broad-based miss, with Private Banks, NBFCs (lending and non-lending), Automobiles, and Oil & Gas posting a YoY earnings decline. The small-cap earnings dipped 9% YoY (our est. of +3%), with 45% of the coverage universe missing our estimates. Conversely, within the large-cap/mid-cap universes, 29%/20% of the companies missed our estimates.
*Upgrade-to-Downgrade ratio at 0.6x: Until now, 32/55 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) contracted, albeit slightly, by 10bp YoY to 18.8%, owing to margin shrinkage in Automobiles, Consumer, Telecom, Real Estate, and Utilities. However, the margin was propped up by the Cement, Metals, and Chemicals sectors.
* Nifty EPS cut for FY26E/FY27E: The Nifty EPS for FY26E has been cut by 1.1% and currently stands at INR1,110. The FY27E EPS has also been cut by 0.8% to INR1,297 (from INR1,308), due to cuts in earnings of Reliance Industries, Axis Bank, Power Grid Corp, HDFC Bank, and Kotak Mahindra Bank.
*MOFSL Universe experienced a cut of 1.1%/0.5% in PAT est. for FY26E/FY27: MOFSL Universe witnessed a cut of 1.1% for FY26, led by Oil & Gas, Private Banks, Healthcare, Utilities, and Lending NBFCs. MOSL Midcap universe stood out with 2.8% earnings upgrade for FY26, even as the large-cap and small-cap universes experienced earnings cuts of 1.5% and 4.2%, respectively.
Key result highlights: 1QFY26
* As of 1st Aug’25, 38 Nifty stocks reported a sales/EBITDA/PBT/PAT growth of 6%/11%/6%/7% YoY (vs. est. of +8%/8%/5%/6%). Of these, 14/7 companies surpassed/missed our PAT estimates each by more than 5%. On the EBITDA front, 11/6 companies exceeded/missed our estimates during the quarter.
* For the 184 companies within our MOFSL Universe, sales/EBITDA/PBT/PAT were +6%/9%/7%/7% YoY (vs. est. of +8%/+8%/+5%/6%). Excluding Metals and O&G, the MOFSL Universe companies recorded a sales/EBITDA/PBT/PAT growth of 9%/11%/7%/7% YoY (vs. est. of +9%/7%/4%/6%) in 1QFY26 so far.
*Summary of the 1QFY26 performance thus far: 1) Banks: Private Banks reported mixed 1QFY26 results, with a few banks posting healthy earnings, while most of the PSBs witnessed some decline. Margins for all banks experienced contraction due to repo rate cuts; margins are likely to further moderate in 2Q as the effect of the rate cuts is yet to be transferred. Most banks expect earnings growth to bottom out in the 1HFY26, with credit costs likely to improve as stress in unsecured lending subsides. 2) NBFCs – Lending: NBFCs reported subdued performance in terms of asset quality and loan growth in 1QFY26, impacted both by seasonal factors such as early monsoons and a weak macroeconomic environment. Vehicle financiers reported elevated credit costs, as the early onset of monsoon affected vehicle utilization and borrower cash flows. 3) Consumer: Staples companies recorded a steady quarter and saw an uptick in volumes as rural-led recovery remained intact, while urban demand also picked up, albeit at a slower pace. 4) Metals: Companies across the board reported muted volumes in 1Q, largely offset by the better NSR, leading to a stable revenue performance as expected. Operating earnings stood largely in line with or better than estimated during the quarter, on account of favorable pricing with muted costs. 5) Oil & Gas: So far, 1QFY26 results for oil & gas companies have been weak. RIL’s consolidated EBITDA declined 2% QoQ (a 5% miss), hit by softer performance in its Retail and O2C segments. CGDs – both IGL and MAHGL posted lower-than-expected EBITDA/scm margins, though volumes remained in line. 6) Technology: The IT services companies had a challenging 1QFY26, with median revenue growing just 0.8% QoQ CC, as GenAI-led productivity gains, weak macros, and client caution weighed on performance. Refer to page 14 for the detailed 1QFY26 sectoral trends.
*View: The 1QFY26 earnings have broadly been in line, with the intensity of earnings cuts moderating compared to the previous quarters, albeit the trend of a higher number of downgrades persists into the quarter. EPS growth for Nifty50 is projected to rise to ~10% in FY26 (vs. an anemic 1% in FY25) – aided by a likely improvement in the macro environment owing to the stimulative fiscal and monetary measures. Markets have staged an impressive recovery from the Apr’25 lows, and even though Jul’25 has been somewhat weak, we believe that better earnings prospects and reasonable valuations (barring small-caps) should help the market to eke out gains. We believe that the influence of the US tariff wars on Indian markets will be limited. The Nifty trades at 22.1x FY26E earnings, near its LPA of 20.7x. While our model portfolio bias remains towards large-caps (~70% weight), we have turned more constructive towards mid-caps (with 22% weight vs. 16% earlier) owing to better earnings delivery and improving prospects. We are OW on BFSI, Consumer Discretionary, Industrials, Healthcare & Telecom, while we are UW on Oil & Gas, Cement, Real Estate, and Metals.
Performance in line with our estimate; modest earnings growth
*Aggregate performance of the MOFSL Universe: sales/EBITDA/PBT/PAT were +6%/9%/7%/7% YoY (vs. est. of +8%/+8%/+5%/6%). Excluding Metals and O&G, the MOFSL Universe companies recorded a sales/EBITDA/PBT/PAT growth of 9%/11%/7%/7% YoY (vs. est. of +9%/7%/4%/6%) in 1QFY26 so far
* Nifty-50 companies that surpassed/missed our estimates: HDFC Bank, ICICI Bank, JSW Steel, M&M, L&T, Tata Steel, NTPC, Bharat Electronics, Cipla, and Eicher Motors exceeded our profit estimates. Conversely, Reliance Industries, Sun Pharma, Power Grid, Nestle, Eternal, Kotak Mahindra Bank, and HCL Technologies missed our profit estimates for 1QFY26.
* Top FY26E upgrades: Tata Consumer (9.7%), Eicher Motors(3.8%), IndusInd Bank (2.6%), Wipro (2%), and ICICI Bank (1.9%).
* Top FY26E downgrades: Eternal (-35.4%), Axis Bank (-8.7%), Power Grid (-5.3%), Sun Pharma (-5.1%), and Nestle (-3.9%).
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