IGI Logo

The Q2FY26 earnings season was marked with interesting events: 1) Mixed trends in US policies, 2) Indian currency depreciation, 3) Slower uptick in exports, 4) GST 2.0 announcement and implementation, 5) A normal and welldistributed monsoon, and 6) Good Reservoir levels. All these developments suggest that the Q2FY26 earnings season is likely to exhibit a mixed trend, broadly in line with previous quarters that witnessed a relatively soft performance. Some breather is expected in Q2FY26, led by sequential improvement in some of the pockets of high-frequency indicators; however, the broader consumption demand could still take one more quarter to get back on track and to undergo a complete inventory adjustment. Most of the significant developments are expected in the second half of the current financial year, leading to a potential improvement in economic momentum. Overall, the improvement in earnings is expected in certain pockets like Telecom, Industrials, Materials, Utilities, and Consumer Discretionary. On the other hand, Banks, Staples, and certain pockets of Pharma would continue to face some pressure. Based on our and consensus estimates, we forecast Nifty to deliver Revenue/EBITDA/PAT growth of 9%/4.8%/8% YoY, respectively, for the quarter. Moreover, excluding Interglobe Aviation, Nifty PAT is expected to grow by 6.5% YoY.

India’s domestic economy well-positioned: Despite external risks, India’s domestic growth trajectory remains intact, with key macroeconomic factors supporting a stronger FY26 compared to FY25. On a YTD basis, the Indian market has underperformed the US market and other emerging markets by a notable margin. FTSE India is now trading at a PE premium of 49% to the EM index (PE), vs. an average premium of 44%. During Sep’24, the Indian market traded at a 97% PE premium to EM. And now, after the correction, it is trading at a 49% premium, which looks attractive compared to the past. That said, relative valuation stabilisation does not necessarily translate into an immediate rally in the current scenario. Markets are expected to track the following four key parameters, in addition to various other developments: 1) Progress on US trade deal negotiations, 2) Revival of the earnings growth cycle, which is likely to start from Q3FY26 onwards, 3) Revival in a credit growth cycle, and 4) Transmission of fiscal and monetary benefits into consumption growth.

Key Highlights for Q2FY26:

NIM pressure likely to reduce sequentially for most of the Banks: We expect NIMs to bottom out in Q2FY26. Margin compression will continue during the quarter, reflecting the full impact of the 100bps rate cut. However, the quantum is expected to be lower sequentially for most banks. We would watch out for management optimism on growth pick-up (likely in H2FY26 and onwards). This will be supported by a) GSTrate rationalization, driving consumption demand, b) Income tax rate cut, and c) Pickup in unsecured credit, with headwinds easing gradually

Higher pricing to boost margin in cement: Cement demand in Q2FY26 is expected to show single-digit YoY growth due to seasonal monsoon weakness, following robust 12% volume growth observed in Jul’25. Rural demand is likely to outperform urban, supported by above-average monsoon and wage growth, while infrastructure spending continues to support overall volumes.

Channel-level disruption is expected in Consumption: While GST 2.0 reforms are structurally positive and are expected to drive long-term formalisation and consumption growth, the transition phase caused temporary disruptions across trade channels as distributors adjusted inventories to align with the revised tax framework.

Strong volume growth in the Automobile sector: We expect EBITDA/PAT for our OEM coverage universe to grow by 11.2%/21.2% YoY on account of GST rate cut, subdued commodity inflation, and favourable regulatory norms. The revenue growth is largely led by low to mid-single-digit industry growth for 2W/PVs/CVs and double-digit volume growth in the tractor industry. The anticipated YoY decline in EBITDA margin is attributed to higher discounts and increased advertisement spending, partially offset by a favourable product mix driven by higher exports and price hikes implemented over the past year.

IT Sector moderate growth, Recovery ahead: The IT Services sector is anticipated to report moderate growth in Q2FY26, driven by a lack of improvement in demand, a steady deal pipeline, and uncertainties in macroeconomic conditions such as Trump tariffs, H1-B visa restrictions, the proposed US HIRE bill, and the ongoing trade war. Over the last few quarters, clients of Indian IT Services companies have been reducing IT budgets due to economic uncertainty, particularly in the US and Europe. Management guidance remains critical at the current juncture

For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home

SEBI Registration number is INZ000161633