AI disruption, West Asia war top concerns for India Inc in Q4: ICICI Sec

ICICI Securities said that AI-led disruption in IT services and inflationary pressures from the West Asia war have emerged as key risks for India Inc during Q4FY26 results season

What are the key risks to corporate earnings?

  India Inc’s March quarter (Q4FY26) earnings season has presented a mixed picture for investors, with ICICI Securities highlighting two key emerging risks -- the long-term disruption from artificial intelligence (AI) in the information technology (IT) services sector, and the near-term impact of the West Asia war on inflation, manufacturing costs, and financial stability. 

Between the two, the brokerage said concerns around AI-led disruption in traditional IT services have emerged as the “top concern” from the earnings season so far.

  ICICI Securities, in its latest report, said that most IT services companies delivered broadly in-line quarterly results, yet their stock prices reacted negatively as investors worried about slowing growth visibility amid rapid AI adoption.

 

  “Concerns about the AI impact on traditional IT Services appear systemic as most IT Services stocks reacted negatively to Q4 earnings,” the brokerage noted. 

 

AI: The biggest risk for India Inc

According to the report, AI could structurally alter the business models of traditional outsourcing and application maintenance businesses over the long run, creating uncertainty around future revenue growth and employee utilisation. 

However, ICICI Securities added that weakness in traditional IT services should not yet be interpreted as a broader slowdown in India’s overall technology exports or discretionary consumption demand.

  “The slowdown in traditional IT Services does not represent the overall IT and outsourcing-related services exports growth led by GCCs, which grew in the high teens in dollar terms in Q4,” the brokerage highlighted.

  Hence, reading the slowdown in traditional IT Services as a risk to discretionary consumption in the economy is premature, it said.

  This, ICICI Securities said, is also reflected in the resilient outlook from consumer-facing sectors such as automobiles and real estate.  Check: Top Losers Today  | Top Gainers Today

 

Inflation and elevated costs risks from Iran war

That apart, inflationary pressure arising from the ongoing Gulf war and rising crude oil prices emerged as the second risk for India Inc from Q4FY26 results. 

ICICI Securities said higher oil prices could potentially affect corporate profitability through elevated raw material costs, while lenders may also face concerns over stressed assets in the short-term if macroeconomic conditions deteriorate.

  The brokerage, however, noted that corporate management commentary, so far, has remained relatively constructive.

  “Most manufacturing companies have not raised any material red flags regarding raw material availability or demand outlook for FY27, despite the Gulf war,” ICICI Securities said. 

  It added that companies remain confident about managing input-cost pressures through cost-saving measures and calibrated price hikes.

  Similarly, lenders have largely avoided sounding alarm bells on asset quality stress, although some banks and non-banking finance companies (NBFCs) have created prudent provisions as a precautionary measure.

  The government’s Emergency Credit Line Guarantee Scheme (ECLGS), ICICI Securities believes, could help cushion risks for lenders and borrowers if macro pressures intensify.

 

Analysis of Q4FY26 results

On the broader earnings front, ICICI Securities said India Inc’s overall Q4FY26 performance has remained reasonably healthy so far, especially across consumption-linked sectors, financials, and select manufacturing pockets. 

Among the standout sectors, discretionary consumption, real estate, auto ancillaries, and pharmaceuticals posted healthy year-on-year growth in sales and profitability. FMCG companies also reported stable earnings momentum.

  The brokerage noted that stock reactions across manufacturers and lenders have remained “evenly distributed” and do not indicate any systemic panic linked to the Gulf war.

  Several companies such as Nestle India, Bajaj Consumer, BHEL, Greenply Industries, and M&M Financial Services witnessed positive market reactions after earnings, while pockets of weakness were seen in select discretionary, pharma, and auto ancillary names.

  Sector-wise earnings data, compiled by ICICI Securities, showed strong year-on-year growth in Q4FY26 sales, Ebitda, and profit across many industries, though performance remained uneven in export-oriented sectors such as technology.