Q1 results show early recovery signs; 18% of India Inc see earnings upgrade

Elara Capital trimmed its FY26 Nifty EPS estimate by 1 per cent to ₹1,165, while projecting a 15 per cent rise to ₹1,335 in FY27

The first-quarter earnings of the financial year 2025-26 (Q1FY26) showed early signs of recovery, though growth was limited to select sectors, with only 18 per cent of companies receiving an earnings upgrade, according to Elara Capital.

 

Aggregate profit after tax (PAT) for Elara’s coverage universe rose about 11 per cent year-on-year (Y-o-Y) on 6 per cent sales growth, broadly in line with estimates. However, the gains were largely skewed towards cyclical sectors, with metals, cement, energy, infrastructure, materials, and financials (excluding banks) contributing over 60 per cent of the incremental PAT growth, it said. 

 

Auto sector growth fell 3.4 per cent Y-o-Y due to discounting pressure, while IT posted a modest 6.8 per cent PAT growth amid weak discretionary spending. Consumer staples reported 2.7 per cent growth despite a 9 per cent rise in sales, indicating early signs of demand recovery, Elara Capital said. 

 

 

In the quarter under review, the upgrade-to-downgrade ratio tilted towards downgrades, with only 18 per cent (47 of 264 companies under coverage) receiving earnings upgrades, while 31 per cent (81 companies) saw FY26 PAT estimates cut, Elara said. The beat-to-miss ratio also fell to 0.9, indicating more earnings disappointments than positive surprises.

 

Elara Capital trimmed its FY26 Nifty earnings per share (EPS) estimate by 1 per cent to ₹1,165, while projecting a 15 per cent rise to ₹1,335 in FY27. The brokerage said a sustained re-rating will require broader earnings participation and consistent upgrades beyond the current sector leaders. 

India's valuations stretch against EM peers

Nifty trades at 19.4 times two-year forward P/E, well above MSCI Emerging Markets' 12.6 times. Consensus estimates project India's $ EPS to grow at a compound annual rate of 9 per cent during CY24-26, trailing MSCI EM's 14 per cent growth.

 

Investor preference appears to be shifting towards South Korea, Taiwan, and China, where technology tailwinds, earnings upgrades, and cheaper valuations offer a stronger value-growth proposition, Elara Capital said. 

 

For India, macro drivers such as policy easing, rural demand recovery, and fiscal support could aid a revival in the second half of FY26. However, Elara Capital said sustained earnings delivery and consistent upgrades will be key to restoring foreign institutional investor interest.

 

The markets will likely to range-bound until the macro push translates to earnings acceleration ot revision in the second half of the FY26, the brokerage said.