 "Midcaps shine in Q2 as cycle bottoms, says Motilal Oswal; OMCs, Metals lead")
India Inc’s Q2FY26 earnings review: India Inc.’s September quarter (Q2FY26) delivered a steady but uneven earnings picture, with analysts at Motilal Oswal Financial Services (MOFSL) highlighting a clear divide across segments as MidCaps extended their dream run, LargeCaps held steady, while SmallCaps continued to struggle.
Corporate earnings logged a third straight quarter of double-digit growth, underpinned by strong performances from Oil Marketing Companies (OMCs), Metals, Telecom, Technology, Cement, NBFCs - Lending, and Capital Goods. In contrast, Automobiles (dragged by Tata Motors), Oil & Gas (ex-OMCs), and Banks – both private and PSU – pulled down overall profitability.
Metals, OMCs and Telecom drive earnings beat
The MOFSL Universe posted a 12 per cent Y-o-Y earnings rise in Q2, topping the brokerage’s estimate of 9 per cent. Excluding financials, profit grew 18 per cent Y-o-Y, while excluding global commodities – Metals and Oil & Gas – the universe delivered a stable 6 per cent Y-o-Y rise, in line with expectations.
OMCs were the biggest standout, analysts noted. Sector profits surged 8.9x Y-o-Y, helping Oil & Gas deliver 38 per cent Y-o-Y earnings growth. Metals also surprised positively with a 25 per cent jump in profitability, aided by strong volumes and lower costs. Telecom swung from loss-to-profit, Technology delivered 8 per cent Y-o-Y growth, and NBFC-Lending reported a 13 per cent rise. Together, these five sectors accounted for 90 per cent of the incremental Y-o-Y earnings accretion.
However, the Nifty50 continued to lag broader trends, delivering just 2 per cent Y-o-Y PAT growth – its sixth straight quarter of single-digit expansion since the pandemic. Earnings support came from only five companies, Bharti Airtel, Tata Steel, HDFC Bank, Reliance Industries, and TCS, which together contributed 300 per cent of the incremental profit.
Losses or declines in Tata Motors, ONGC, Coal India, Axis Bank, SBI, Interglobe Aviation, HUL, Kotak Mahindra Bank, Tech Mahindra and others weighed heavily. ALSO READ | Commodities spur India Inc's Sep qtr showing; other key sectors struggle
MidCaps outperform; SmallCaps miss broadly
Across MOFSL’s universe, large-caps (88 companies) posted a stable 10 per cent Y-o-Y profit rise, largely mirroring overall trends. But midcaps (97 companies) were the star performers, extending their winning streak for a fourth straight quarter with a strong 34 per cent Y-o-Y earnings expansion, far ahead of MOFSL’s estimate of 23 per cent. Oil & Gas, Metals, NBFC-Lending, PSU Banks and Real Estate accounted for 70 per cent of midcap profit accretion. Sixteen of the 22 sectors under coverage delivered double-digit earnings growth.
SmallCaps, however, reported a weak quarter, analysts said. Earnings fell 5 per cent Y-o-Y against MOFSL’s estimate of a 3 per cent rise, with 40 per cent of companies missing profit estimates. Weakness was widespread across Private Banks, NBFCs, Insurance, Oil & Gas, and Retail. In comparison, only 19 per cent and 22 per cent of large-caps and midcaps, respectively, missed quarterly projections.
Overall, 36 per cent of MOFSL Universe companies beat profit estimates, while 29 per cent reported a miss. For FY26E, the earnings upgrade-to-downgrade ratio stood at 0.9x, reflecting a balanced revision cycle – 84 companies saw upgrades of more than 3 per cent and 98 saw downgrades. ALSO READ | Q2 earnings reinforce confidence in growth revival, says Nimesh Chandan
Earnings cycle bottoming; Nifty EPS upgraded
With the first half of FY26 (H1FY26) showing MOFSL/Nifty earnings growth of 11 per cent/5 per cent Y-o-Y, MOFSL analysts expect the trend to accelerate in the second half (H2FY26).
For H2FY26, analysts project earnings growth of 15 per cent for its universe and 11 per cent for the Nifty. Excluding Metals and Oil & Gas, MOFSL sees 16 per cent Y-o-Y earnings expansion in H2.
For FY26, MOFSL expects 6 per cent/12 per cent/15 per cent Y-o-Y growth in sales/Ebitda/PAT for its universe. Financials, Oil & Gas and Metals are expected to account for 58 per cent of incremental profit.
The MOFSL Universe FY26 PAT estimate was upgraded by 2.3 per cent, led by Oil & Gas, PSU Banks, Telecom, Insurance and Metals. Midcaps saw the sharpest upgrades (3.4 per cent), while SmallCaps saw cuts of 3.9 per cent.
Nifty earnings per share (EPS) was raised 1.2 per cent/0.5 per cent for FY26E/FY27E to 1,109 and 1,280, respectively. SBI (+9.3 per cent), ONGC (+7.6 per cent), Hindalco (+7.2 per cent), Bharti Airtel (+7.1 per cent), and Tata Steel (+5.8 per cent) led upgrades, while Eternal (-37.9 per cent), Interglobe Aviation (-23.2 per cent) and NTPC (-9.2 per cent) topped the downgrade list.
Outlook: Markets healthier, Domestic rebound key
MOFSL analysts noted that although equities have underperformed over the past year, market fundamentals have strengthened. The earnings cycle appears to be bottoming out, valuations remain reasonable with the Nifty trading at 21.2x – near its long-period average of 20.8x – and reforms-driven policy support may aid recovery.
Therefore, analysts remain tilted toward domestic-facing sectors and selectively positive on SMID-caps despite elevated valuations, expecting the domestic economic rebound to lead the next leg of earnings growth.