Midcaps have led the recovery with earnings gains of 3.1% for FY26, while largecaps have also seen healthy upward revisions of around 2%. In contrast, small caps remain under pressure, with overall PAT estimates for FY26 cut by 5.5%, reflecting continued tension in the tail end of the market.
Sector leaders and laggards
Within the broader universe, the scope of revisions has been more favorable in the larger sectors, where key profit pools have seen meaningful improvements. Oil and gas (PAT for FY26 up 13%), telecom (up 30%), PSU banks (up 5%), insurance (up 3%) and non-lending NBFCs (up 2%) are among the top gainers on the earnings revision list.
On the other hand, utilities have seen the steepest cuts with an 8% downgrade in PAT for FY26, followed by autos at 3% (largely due to Tata Motors; apart from that, auto PAT has been revised up by 3%) and healthcare at 3%. Among smaller sectors, chemicals, media, human resources and cement have borne the brunt of the cuts, while small-cap private banks, insurance, retail and EMS have seen double-digit profit declines.
Outlook: Growth in the mid-teens despite weak GDP
The brokerage projects FY26/FY27 earnings growth of 12%/15% for the Nifty 50 and 15%/16% for its coverage universe, implying that the current upgrade phase can be sustained without sharp swings in either direction. It is argued that even if nominal GDP growth is expected to remain below 10%, corporate earnings growth in the mid-teens is plausible because PAT is influenced by factors such as leverage, pricing power, cost trends and competition, and not just top-down macro growth. Historical data shows that nominal GDP growth explains only about 20% of Nifty 50 PAT growth and an even smaller share for the broader universe, with explanatory power improving to still modest levels even in prolonged, non-linear convulsions. With PAT in the MOFSL universe growing at just 6% in FY25, the low base also increases the likelihood of stronger earnings growth in the mid-teens in FY26-27.
The modest share of profit in GDP
India Inc’s profit pool remains relatively small relative to the size of the economy, adding to the cyclicality of profits relative to the smoother GDP trajectory. Nifty 500 PAT was 4.7% of GDP in FY24 and FY25, while total corporate profits (listed plus unlisted) were around 7.3% of GDP, compared to an average India Inc profit-to-GDP ratio of around 4-5% over the last two decades.
In contrast, US corporate profits have averaged around 11% of GDP between 2020 and 2024, but even there nominal GDP growth has shown limited ability to explain annual earnings growth, strengthening the case for looking beyond macro growth rates when assessing profits. The report concludes that concerns about lower nominal GDP mechanically dragging down corporate profits are overblown in the Indian context.
Ratings, positioning and preferred themes
Motilal Oswal remains constructive on equities and expects Indian markets to make up for their calendar 2025 underperformance on healthier earnings, supportive domestic macros and an improved geopolitical environment. Large caps are described as ‘undemanding’, with the Nifty 50 trading at a one-year price-to-earnings ratio of 21.3 times, versus a long-term average of 20.8 times, while small caps command a significant premium.
The brokerage is overweight diversified financials, autos, capital goods, IT services and telecoms, and underweight energy, metals, utilities and commodities. Its favorite large-cap names include Bharti Airtel, ICICI Bank, SBI, Infosys, Larsen & Toubro, M&M, Titan, Bharat Electronics, IndiGo, TVS Motor, Tech Mahindra and Indian Hotels, while mid-cap picks include Swiggy, Dixon Technologies, Suzlon, Jindal Stainless, Coforge, Kaynes Technology, Radico Khaitan, V-Mart and VIP Industries.
#India #sees #profit #increase #fivequarter #hiatus