India Inc signals turnaround with strong Q2 sales

markets

India Inc signalled the first clear signs of a turnaround in the September quarter, with companies posting their strongest sales growth in 10 quarters and profits showing renewed stability. The improvement helped lift market sentiment, reinforcing expectations that the worst phase for corporate earnings may finally be over.

An analysis by Moneycontrol of 347 Nifty500 companies — excluding banks, finance, insurance and oil firms, which follow different accounting models — showed aggregate net sales rising 10.3 percent year on year in the September quarter, the fastest since March 2023. The revival was powered by fertilizers, automobiles, cement, e-commerce and consumer durables, sectors that benefited from rural recovery, firmer demand and infrastructure-linked volumes. Their momentum helped offset muted performances in power, infrastructure, IT and chemicals, where high bases, execution delays and global weakness weighed on growth.

The improving sales trajectory reflects a recovery in cyclical segments such as cement and autos, alongside a rebound in consumption-driven categories like e-commerce and durables. Analysts noted that a sustained revival in rural markets and infrastructure activity could confirm a broader turnaround in the second half of FY26, with overall sales expected to grow 8–10 percent for the year.

Among the strongest performers were Eternal, which posted a 183 percent jump in sales, Jio Financial with a 42 percent rise, and Adani Ports at 30 percent. On the weaker side, SBI Life Insurance reported a 43 percent drop, while HDFC Life Insurance fell 28 percent.

Net profit for the companies surveyed rose 18.3 percent, a two-quarter high supported by steady interest costs. Operating profit increased 13.8 percent year on year, its best performance since December 2023, highlighting a broadening recovery. Cement led sectoral profit growth on the back of solid volume gains and pricing power, followed by fertilizers aided by subsidies, and paints. Power, chemicals and infrastructure lagged due to operational losses despite some pickup in sales.

Research houses said the earnings cycle appears to have bottomed out. Emkay Research noted that GST cuts should help sustain demand, while low WPI inflation could support margins. The brokerage expects EPS to rise 8.2 percent for the Nifty in FY26 and about 12.4 percent in FY27.

Policy support is also feeding through. Government measures, early GST rate cuts and expectations of a softer interest-rate environment are gradually lifting corporate performance. The limited impact of delayed monsoons and tariff adjustments points to resilient underlying demand. Analysts believe easing inflation and potential rate cuts could further stimulate sales, though a meaningful pickup in private capex is still awaited. With government spending gradually rising, the recent data may represent the early steps of a sustained recovery, provided consumer sentiment holds.

Vinayak Magotra, Product Head and Founding Team Member at Centricity WealthTech, said optimism around a possible trade deal with the US may add further momentum. He noted that valuations have cooled, with the Nifty 50 price-earnings ratio easing by around 40 basis points and the midcap index by nearly 20 percent from a year earlier, partly because of new entrants. He added that while sentiment and sales have improved, investors may prefer to assess another quarter before making fresh allocations.

Operating margins narrowed to 22 percent from 22.4 percent in the previous quarter, under pressure from tariff-related challenges that weighed on IT and pharma exports. Analysts expect these sectors to improve once a tariff deal is finalised.

Ajay Garg, CEO & Director, SMC Global Securities said the earnings recovery across the Nifty500 offers a cushion against stretched valuations, especially in sectors with strong operating leverage such as cement and consumer durables. GST cuts and softer retail inflation have already boosted spending in automobiles, FMCG and durables, which are expected to deliver stronger earnings in the coming quarters.

Still, global uncertainty and foreign investor selling remain risks. Broader indices appear fairly valued only if the economy achieves a soft landing, prompting analysts to favour focused exposure to infrastructure and consumption-linked themes over broad-based investing, Garg added.