Profit growth hits six-quarter low; revenue growth slowest in three quarters

Operating profit increased by 10 percent year-on-year, the slowest pace since September 2024, and declined by 3.3 percent sequentially — the deepest drop since September 2022.

Indian companies, excluding those in banking, financial services, insurance (BFSI), and oil & gas sectors, reported their weakest performance in several quarters during the April to June period. Both net profit and revenue declined sequentially and year-on-year growth slowed significantly.

Based on data from 1,335 companies analysed by Moneycontrol, net profit for Q1FY26 rose by 8.3 percent year-on-year — the slowest increase since the December 2023 quarter. On a sequential basis, net profit dropped by 11 percent, the steepest decline since September 2022.

Revenue rose by 8.4 percent year-on-year, the slowest in three quarters, and fell 2.2 percent from the previous quarter, the sharpest fall since June 2023. Operating profit increased by 10 percent year-on-year, the slowest pace since September 2024, and declined by 3.3 percent sequentially — the deepest drop since September 2022.

Experts said IT services companies continued to struggle with weak discretionary spending, macroeconomic uncertainty, and delayed client decisions, all weighing on growth and margins. Consumer companies saw poor volume growth, with rising raw material costs further eroding profitability. Weak demand in urban markets and rising competition also impacted performance. Auto companies faced a drop in demand and lower margins during the quarter.

Metal companies reported flat volumes, but better net sales realization helped maintain stable revenue. Operating earnings were in line or slightly better than estimates due to favourable pricing and cost control.

Earnings for Nifty-50 companies were broadly in line with expectations. Based on results from 36 companies, net profit for the index rose by 8.2 percent on-year. EBITDA grew by 4.4 percent based on 25 non-BFSI companies, falling short of estimates by 3.4 percent.

Kotak Institutional Equities expects net profit growth of 10 percent in FY26 and 17 percent in FY27. While headline revenue appeared strong, a large part of the growth came from non-interest income in banks, one-off investment gains at HDFC Bank and performance in Reliance’s oil-to-chemicals segment.

According to a recent note by Motilal Oswal, several mid-cap sectors—including technology, capital goods, PSU banks, healthcare, cement, metals and utilities—posted strong earnings growth in Q1FY26. In contrast, small-cap companies continued to lag.

Among the 74 small-cap firms reviewed, 45 percent of the firms missed expectations, with the weakest performance seen in private banks, NBFCs, automobiles, and oil & gas. Within the large-cap and mid-cap segments, 29 percent and 20 percent of companies, respectively, reported earnings below estimates.

The report also noted that overall Q1FY26 results were broadly in line, although earnings downgrades persisted. Nifty-50 earnings per share (EPS) is projected to grow 10 percent in FY26, up from 1 percent in FY25, supported by fiscal and monetary policy measures. Despite weakness in July, markets have recovered from April lows. Improving earnings visibility and reasonable valuations—excluding small-caps—are expected to support further market gains.

The impact of US tariffs on Indian equities is likely to be limited. The Nifty currently trades at 22.1 times FY26 estimated earnings, close to its long-period average of 20.7 times. The model portfolio maintains a 70 percent allocation to large-caps, with a more positive stance now emerging on mid-caps, the report added.