Muted FY26 to fuel strong FY27 sales, profit rebound for India Inc: CLSA

CLSA on India Inc.: India’s corporate earnings trajectory is set for a stronger upturn in FY27, with both sales and profit after tax (PAT) likely to accelerate meaningfully as wholesale price inflation rises and cost pressures remain contained, according to CLSA’s latest assessment of over 3,200 listed companies. 

 

Drawing on the Q2FY26 and H1FY26 financial statements, analysts Nikhil Gupta and Adarsh Agarwal of CLSA highlighted that the foundations for next year’s growth recovery are already visible in the current year’s muted but stable performance.

 

CLSA indicated that, following several quarters of modest revenue growth, non-government, non-financial (NGNF) companies could see a meaningful improvement in both sales and profitability in FY27, underpinned by rising WPI inflation and stable operating margins.

FY27 set for stronger sales, PAT growth

 

Sales growth for listed NGNF companies has hovered in the mid-single digits for 11 consecutive quarters, a trend CLSA attributed primarily to weak WPI-inflation. With wholesale inflation expected to rise from less than 1 per cent in FY26 to around 3 per cent in FY27, the brokerage sees a “high possibility” of a meaningful top-line recovery next year. 

 

Within CLSA’s coverage universe, sales growth is projected to rise to 11.6 per cent in FY27, sharply higher than 6.9 per cent in FY26, while PAT growth is projected to climb to 17.2 per cent, up from 12.3 per cent this year. If raw material and fuel costs remain broadly stable, this improvement in nominal revenue should translate into a strong earnings push.  ALSO READ | Markets in 2026: Avendus Wealth's Saurabh Rungta decodes an ideal portfolio

Muted FY26 sales growth but supportive cost dynamics

 

In H1FY26, net sales of listed NGNF corporates rose 6.8 per cent year-on-year (Y-o-Y), matching the pace of FY25 and exceeding the 4.7 per cent growth in FY24, though still trailing nominal GDP expansion. Notably, total expenditure rose at the same 6.8 per cent Y-o-Y, moderating from 7.2 per cent in FY25, supported by a sharper fall in power and fuel costs.

 

Employee expenses also showed improvement. Based on a common sample, employee costs rose 6.8 per cent Y-o-Y in H1FY26, higher than 5.2 per cent in FY25, implying a stronger real wage growth of 4.5 per cent, compared with just 0.6 per cent last year. Even so, nominal wage growth remains well below the 10-11 per cent average seen in the previous decade, indicating that labour costs remain moderate.

Operating margins remain near multi-year highs

 

A softer rise in costs relative to sales helped operating profits expand during the first half, analysts said. The Ebitda margin stayed stable at around 19 per cent, unchanged from FY25’s 19.2 per cent, the highest level in at least 15 years, excluding the pandemic period. Margin stability was broad-based across the manufacturing, IT, and non-manufacturing ex-IT sectors.

 

When NGNF companies are combined with financial firms and public sector units, aggregate PAT for roughly 3,200 listed entities remained steady at 4.6 per cent of GDP in H1FY26. This is a sharp improvement from the sub-2 per cent levels seen in the pre-Covid years, with the gains broadly spread across sectors.  ALSO READ | Nifty could outrun S&P in 2026, mirror earnings growth: Amish Shah, BofA

Record-high interest coverage suggests balance sheet strength

 

Corporate leverage remains comfortably low, analysts said. The interest coverage ratio for NGNF companies stood at an all-time high of 6x for the third consecutive quarter in Q2FY26. Although interest rates have declined in recent years, CLSA noted that the benefits of lower interest costs appear to have accrued mainly to entrepreneurs, whose share in gross value added has risen, while labour’s share has stayed broadly unchanged compared to pre-pandemic levels.

Large cos maintain dominance; small firms register rare profitability

 

Market share concentration remained pronounced in H1FY26, analysts noted. Large companies, defined as those with annual sales above ₹1000 crore, continued to build on the gains made over the past decade. Their share of total sales rose from 87.6 per cent in the pre-demonetisation period to 93.1 per cent in H1FY26. Small firms (with sales below ₹500 crore) and mid-sized firms (₹500-1,000 core) each accounted for around 3.5 per cent.

 

However, CLSA identified one notable positive shift i.e. small companies recorded positive PAT in H1FY26 for the first time in 14 years, the entire period for which comparative data is available.

FY27 Outlook: Stronger nominal growth to lift earnings

 

After two strong years followed by a prolonged stretch of mid-single-digit revenue growth, India Inc. may be on the cusp of a more robust earnings cycle, analysts said. With wholesale inflation set to rise and input costs expected to remain relatively contained, CLSA believes FY27 could mark a meaningful acceleration in both sales and PAT for corporate India.

  Disclaimer: The report/outlook has been suggested by CLSA. Views expressed are their own