India Inc. Earnings: FY26 Slowdown, FY27 Surge Ahead

The Indian stock market is currently in a phase of consolidation, influenced by varied earnings reports, global economic factors, and shifts within the IT sector. While domestic fundamentals remain robust, investors should adopt a cautious strategy due to sectoral disparities and high valuations in some areas.

Results from the Nifty 500 indicate aggregate Profit After Tax growth of 10% year-over-year, slightly exceeding expectations. However, performance is polarized, with some companies exceeding estimates while others lag. One-time provisions related to new Labour Codes also impacted corporate earnings, keeping overall growth below the desired 15% threshold.

Sectors like Energy, Financials, and Metals have provided significant support. Energy benefited from stable crude prices, Financials from healthy loan growth, and Metals from improved realisations and volumes. Conversely, Communication Services and Consumer Discretionary segments faced pressure from moderate demand and margin issues.

Public Sector Undertaking (PSU) banks have emerged as outperformers, consistently delivering stronger credit growth than private banks. The Indian defence sector is entering a multi-year capital expenditure cycle, bolstered by a substantial increase in the FY26-27 defence budget aimed at boosting domestic manufacturing.

Looking ahead, Nifty 50 earnings are forecast at 5-6% for FY26, escalating to 12-15% in FY27, supported by domestic demand and trade agreement clarifications. However, Foreign Institutional Investors (FIIs) have reduced their holdings in Indian IT stocks due to concerns over weakening earnings visibility, global uncertainty, and potential AI-driven disruptions impacting traditional outsourcing models.

Despite AI's potential to reshape IT dynamics, Indian IT firms are actively integrating AI capabilities into their offerings. While FY27-28 growth projections are more subdued, current valuations present potential entry points for long-term investors. The market has experienced volatility driven by geopolitical tensions, crude price fluctuations, currency weakness, and subdued FII participation.

Overall, the Indian market is selective rather than broadly overheated. Earnings growth is mixed, IT is navigating AI impacts, PSU banks are strong, and the defence sector has policy backing. Investors are advised to maintain disciplined stock selection and staggered deployment strategies for FY26-27.