Q1 earnings beat estimates; Nomura explains what could sustain momentum

Q1 earnings review: India Inc's first quarter earnings season for FY27 was ahead of estimates, and this momentum is expected to prevail, suggests global brokerage Nomura.

 

For Nifty 50 companies, year-on-year (Y-o-Y) earnings growth was 4 per cent, exceeding consensus estimates by 1 per cent. However, Nomura believes the underlying growth points to a stronger operating performance than headline numbers suggest. The figure was distorted by the impact of oil price movements and one-off items, and excluding that, earnings growth is seen in the low teens.

 

The broader market also delivered a stronger performance. Nomura's analysis of 256 companies in the BSE 200+ universe (including Nomura coverage stocks) showed reported PAT growth of 3 per cent Y-o-Y, while normalised PAT, excluding extraordinary items, rose 6 per cent. Both figures beat consensus estimates by 8 per cent and 12 per cent, respectively.

 

 

The oil and gas sector was a significant drag on aggregate earnings, with losses at oil marketing companies accounting for around 4 per cent of the universe's total profit pool. Financials and metals accounted for almost the entire aggregate earnings beat, Nomura said.

 

Revenue growth at 17 per cent (excluding oil & gas, metals, and financials) reached a 12-quarter high, though this was offset by margin compression of 122 bps.

 

Despite the strong quarter, earnings estimates have seen some moderation. Bloomberg consensus earnings estimates for the BSE 200+ universe have been cut by 3.7 per cent for FY27 so far in 2026, while FY28 estimates have remained broadly unchanged. Aggregate earnings through the results season have also held steady.   

What could sustain earnings momentum?

Nomura's Saion Mukherjee and Akshay Rajgarhia believe that the corporate earnings momentum remains resilient, supported by cyclical tailwinds from tax cuts and monetary easing, including liquidity injections and lower interest rates. However, they cautioned that these factors are already adequately reflected in current consensus expectations.

 

The brokerage sees a meaningful revival in the investment cycle and domestic manufacturing activity as the key factors that could sustain earnings growth above nominal GDP growth. Conversely, persistently elevated crude oil prices and geopolitical tensions remain key downside risks, as they could squeeze corporate profitability and delay the recovery in investment activity.

 

Commenting on Nifty valuations, Nomura said that the index is currently trading at 18.1x one-year forward earnings, close to the low end of the 18-22x valuation range that has prevailed over the past four years. It has a March 2027 Nifty 50 target of 25,900, based on 18.5x one-year forward earnings.

 

The brokerage is constructive on auto ancillaries, engineering/manufacturing, and pharmaceuticals. Further, it remains positive on financials and IT services, supported by what it views as attractive valuations. On the other hand, it is cautious on consumption.

 

Disclaimer: Views and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.