Motilal Oswal trims FY26 Nifty EPS; bets on midcaps in interim Q1 review

Motilal Oswal on India strategy amid ongoing Q1 results: Motilal Oswal Financial Services (MOFSL), in its interim India strategy review of the Q1FY26 earnings season, said the quarter was broadly resilient, though earnings downgrades continue to overshadow the mood. 

 

As of August 2, results from 184 companies in the MOFSL universe and 38 of the Nifty50 have been released, covering a considerable portion of India’s market capitalisation and offering a comprehensive early glimpse into corporate India’s financial health.

 

The aggregate earnings of the 184 companies in MOFSL’s coverage rose 7 per cent year-on-year (Y-o-Y) in Q1FY26, matching the brokerage’s estimates. The growth, analysts believe, was led by a handful of sectors – BFSI, Technology, Oil & Gas, Cement, and Utilities – that together accounted for 71 per cent of the incremental earnings rise. 

 

Within the Nifty50, the 38 firms that have declared results so far reported a 7.5 per cent increase in earnings, comfortably surpassing expectations of 5.7 per cent growth. The performance, however, was highly concentrated. 

 

Heavyweights like Reliance Industries, HDFC Bank, ICICI Bank, JSW Steel, Bajaj Finance, L&T, and M&M contributed entirely to the Y-o-Y profit accretion. On the flip side, companies such as Coal India, IndusInd Bank, HCL Tech, Kotak Mahindra Bank, Axis Bank, and Eternal were key drags on Nifty earnings.

 

Midcaps have continued their strong earnings streak for the third consecutive quarter, posting a 12 per cent Y-o-Y profit increase – well above the brokerage’s expectations of 8 per cent. Multiple midcap-heavy sectors such as capital goods, PSU banks, healthcare, cement, and technology supported this growth. Large-caps, in contrast, posted 7 per cent growth, in line with the overall universe. 

 

Small-caps, however, remained the laggard. A broad-based weakness, especially in private banks, NBFCs, auto, and oil & gas, led to a 9 per cent Y-o-Y earnings decline against an estimated 3 per cent rise. Nearly 45 per cent of the small-cap companies under coverage missed estimates. The gap between segments is stark: while only 20–29 per cent of large- and mid-cap companies missed estimates, nearly half of the small-cap pack disappointed.

 

Nifty EPS cut

 

Despite the overall resilience, the report showed signs of fragility in forward earnings visibility. MOFSL has revised down its FY26 Nifty EPS estimate by 1.1 per cent to ₹1,110 and FY27 EPS by 0.8 per cent to ₹1,297. The cuts, analysts said, were led by weaker earnings forecasts for Reliance Industries, Axis Bank, Power Grid, HDFC Bank, and Kotak Mahindra Bank. 

 

In the MOFSL universe, FY26 and FY27 PAT estimates were lowered by 1.1 per cent and 0.5 per cent, respectively. While the midcap universe saw a 2.8 per cent earnings upgrade for FY26, large-caps and small-caps faced cuts of 1.5 per cent and 4.2 per cent.

 

Margins were stable overall, though not without stress. The Ebitda margin for the MOFSL universe, excluding financials, declined slightly by 10 basis points (bps) Y-o-Y to 18.8 per cent. Sectors such as automobiles, consumer, telecom, real estate, and utilities witnessed contraction, but this was partially offset by margin gains in cement, metals, and chemicals. 

 

Among Nifty50 names, HDFC Bank, ICICI Bank, JSW Steel, M&M, L&T, Tata Steel, NTPC, Bharat Electronics, Cipla, and Eicher Motors outperformed profit expectations. In contrast, Reliance Industries, Sun Pharma, Power Grid, Nestle, Eternal, Kotak Bank, and HCL Technologies fell short.

 

The upgrade-to-downgrade ratio stood at an unfavourable 0.6x, as downgrades outpaced upgrades. Top FY26 EPS upgrades came from Tata Consumer (9.7 per cent), Eicher Motors (3.8 per cent), IndusInd Bank (2.6 per cent), Wipro (2 per cent), and ICICI Bank (1.9 per cent), while the biggest downgrades were seen in Eternal (-35.4 per cent), Axis Bank (-8.7 per cent), Power Grid (-5.3 per cent), Sun Pharma (-5.1 per cent), and Nestle (-3.9 per cent).

 

Thus, analysts at MOFSL believe the earnings intensity has stabilised, and the market is better positioned now than earlier this year. The brokerage expects Nifty EPS growth to rebound to nearly 10 per cent in FY26 from just 1 per cent in FY25, aided by an improved macro backdrop, fiscal and monetary support, and favourable base effects. 

 

While valuations for small-caps remain a concern, large-caps are trading near their long-period averages, with the Nifty at 22.1x FY26E earnings. 

 

MOFSL has turned incrementally constructive on midcaps, raising its allocation to 22 per cent from 16 per cent, while keeping a 70 per cent weight on large-caps. Besides, the brokerage remains overweight on BFSI, consumer discretionary, industrials, healthcare, and telecom, and underweight on oil & gas, cement, real estate, and metals.