India Inc's half time scorecard: Earnings upgrades outpace downgrades

India Inc’s second-quarter FY26 earnings season delivered a stronger-than-expected performance, bolstered by robust showings across key sectors and mid-caps, even as select small-cap pockets softened. Brokerages noted that, for the first time in several quarters, earnings upgrades outpaced downgrades, reflecting rising confidence in corporate profitability.

A Motilal Oswal review reported a 14 percent year-on-year earnings rise among companies that have declared results so far, broadly in line with expectations. Oil and Gas led gains, with state-run fuel retailers posting nearly nine-fold profit growth, driving a 79 percent surge for the sector. Cement delivered a 147 percent jump, Technology rose 8 percent, Capital Goods gained 17 percent and Metals advanced 7 percent, together contributing 86 percent of incremental profit growth.

Among the 27 Nifty firms that have announced results, earnings climbed 5 percent from a year earlier, driven by HDFC Bank, Reliance Industries, TCS, JSW Steel and Infosys. These companies together accounted for more than the total incremental profit expansion, while Coal India, Axis Bank, HUL, Kotak Mahindra Bank and Eternal dragged performance. Seven Nifty constituents missed estimates, five beat forecasts and fifteen posted in-line results.

So far, 27 Nifty companies have announced their earnings for the September quarter, reporting year-on-year growth of 9 percent in sales, 8 percent in EBITDA, 5 percent in profit before tax (PBT), and 5 percent in profit after tax (PAT). These figures compare with estimated growth of 7 percent, 8 percent, 5 percent, and 6 percent, respectively.

Within the MOFSL Universe, 151 companies have reported results for the September quarter, posting year-on-year growth of 8 percent in sales, 13 percent in EBITDA, 13 percent in profit before tax (PBT), and 14 percent in profit after tax (PAT). These results surpassed estimates of 5 percent, 8 percent, 7 percent, and 9 percent, respectively. Excluding the Metals and Oil & Gas sectors, the companies in the MOFSL Universe registered sales growth of 10 percent, with EBITDA, PBT, and PAT rising 5 percent, 4 percent, and 6 percent year-on-year, respectively, compared with projections of 9 percent, 3 percent, 1 percent, and 2 percent.

Large-cap earnings rose 13 percent, in line with the broader universe. Mid-caps again outperformed with a 26 percent surge versus expectations of 19 percent, supported by Technology, Cement, Metals, PSU banks, Real Estate and non-lending NBFCs. Small-caps lagged at 3 percent growth as private banks, non-lending NBFCs, Technology, Retail and Media weighed on performance. Even so, 69 percent of small-caps met or beat forecasts, compared with 84 percent of large-caps and 77 percent of mid-caps.

Brokerage Kotak Institutional Equities flagged muted demand in essential consumer goods, even as certain discretionary segments continued to see healthier traction.

Consumer-focused companies reported weak volume growth as GST-linked destocking weighed on sales, though analysts expect volumes to recover in the December quarter with demand improvement and channel restocking. Profitability remained soft for most staples, while several firms cited early signs of urban demand pickup. Auto volumes reflected little benefit so far from GST reductions, with momentum expected to build from October 2025.

Metals and energy sectors delivered strong surprises. Ferrous players faced sequential price pressure amid heavy monsoon conditions but still topped estimates. Oil marketing companies such as HPCL, Bharat Petroleum Corp and Indian Oil Corp outperformed on stronger-than-expected refining margins and robust marketing spreads. Reliance Industries posted a 7 percent quarter-on-quarter rise in consolidated EBITDA to Rs 45,900 crore, up 17 percent year-on-year.

IT services firms delivered a median 1.9 percent sequential revenue increase in constant currency, with all large players meeting or exceeding expectations. However, commentary remained cautious, with management signalling subdued demand and limited visibility on new spending cycles.

Banks reported broadly steady results, supported by modest credit growth, slightly better-than-expected net interest margins and stable asset quality. Analysts noted improving trends in unsecured portfolios for larger banks alongside continued stability in overall credit quality.

Analysts said earnings cuts have moderated and the cycle appears to be bottoming out, with double-digit growth expected ahead. Despite muted market returns over the past year, the brokerage noted that market fundamentals are more resilient than a year ago.

With the Nifty trading at 21.4 times earnings, close to its long-period average of 20.8 times, improving profit momentum could support valuations. analysts expect ongoing domestic reforms to continue supporting corporate performance, while clarity on tariff issues could serve as an external catalyst. Analysts remains overweight on domestic-focused names and selectively constructive on high-conviction mid- and small-cap opportunities, despite elevated valuations in parts of the small and midcap segments.