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As the curtain falls on the July-September quarterly results of fiscal year 2025-26 (Q2 FY26), how has India Inc fared? What are the cues from the corporate performance?
The CMIE database shows that the 2,305 non-financial companies that had declared their results at the time of writing had seen growth in net sales of 6.8 percent year-on-year. That’s not all that great, but it’s the highest growth in several quarters. It’s worth noting, though, that growth had fallen in the year-ago September 2024 quarter, so there’s a favourable base effect. Both manufacturing as well as services (other than financial) have shown a decent bounce, all the more significant, given the fall in inflation.
Profits after tax, after adjusting for exceptional items, grew by 16.2 percent y-o-y for the sample, well below the June quarter’s 23.8 percent. Note that PAT after exceptional items had seen a contraction in both the June and September 2024 quarters, so there’s a substantial boost from the low base.
Trump’s punitive tariffs came into effect in the September 2025 quarter, but their impact hasn’t been discernible in the Q2 results. Both sales and profits at marine foods companies in the aggregate were strong, as they were for gems and jewellery firms. Profits at textile companies held up well, except for firms making ready-made garments. Computer software companies in aggregate saw a mere 3.75 percent growth in profits after tax after adjusting for exceptionals.
The September 2025 quarter did not really see the effect of the GST rate cuts. The CMIE database shows that growth in net sales for consumer goods firms was more or less the same as in the June quarter, at 8.6 percent. In fact, aggregate net sales for firms making domestic appliances saw a small contraction from the year-ago quarter. However, automobile firms saw strong sales, especially those manufacturing two and three wheelers.
Operating margins, both for the manufacturing sector and the non-financial sector as a whole, have remained strong, at 12.6 percent and 15.7 percent, respectively.
Most importantly, Return on Capital Employed (ROCE) (using PAT net of exceptional items) was a high 9.5 percent for the non-financial sector for the first half of FY26, the highest in many years.
That doesn’t mean Corporate India is expanding capex, however. Net fixed asset growth in the non-financial sector for the first half of FY26 has been a tepid 6.7 percent. The conundrum is that, in spite of high ROCE, and despite the debt-equity ratio for the non-financial sector being a low 0.5, Corporate India is wary of expanding capex. This caution likely stems from persistent global uncertainties—including Trump's tariff policies and volatile trade conditions—along with concerns about demand sustainability, making companies reluctant to commit to long-term capital investments despite favourable financial metrics.
As for the financial sector, the CMIE database shows PAT growing by 9.1 percent y-o-y, but there’s a substantial base effect. ROCE has remained steady, at around 5 percent.
So, what does all this add up to? The second quarter results of India Inc saw headwinds from Trump’s tariffs, but also tailwinds as companies raced to front-run them. It saw a tailwind from the beginning of the GST rate cuts, but also a headwind as consumers deferred purchases in anticipation of the lower prices. What we can say is that in spite of all these uncertainties, the Indian corporate sector has held up well, if the ROCE is any guide. That is one fundamental reason why the market has seen support.
More important is the path ahead. The impact of the GST rate cuts will spill over to Q3, as will festive spending. On the flip side, there is some concern about the deflationary impact of very low food prices on farm incomes and rural demand and there are worries about how very low inflation will affect nominal GDP growth and government revenues.
But, on the whole, we had pointed out that there are “strong reasons for expecting a better second half, and it’s not just festive sales. Lower inflation, the effect of the tax cuts — both income tax and GST, but especially the latter — a decent monsoon, improving liquidity, the full transmission of the interest rate cuts, the easing of credit restrictions, should all boost growth and find a reflection in corporate earnings from Q3 onwards. Commodity prices should remain low, given tepid global growth. The icing on this cake could be a likely RBI rate cut this quarter”.
That’s not all — expectations are strong that we’ll soon see a trade deal with the US. We also said we have seen “a fall in both the World Policy Uncertainty Index and the World Trade Uncertainty Index in October 2025, and a corresponding jump in the World Sentiment Index”. Any further reduction in uncertainty will be a boon for the markets.
Investing insights from our research team
Tata Motors Passenger Vehicle: PV picks up speed while JLR falters
RateGain – Should the outsized acquisition be the key draw for investors?
Hero MotoCorp Q2 FY26: Strong performance, driven by growth across segments
Marico Q2 FY26: Strong top-line growth; margin pressure to ease
LG Electronics India Q2: One-off demand disruption not to affect the core thesis
What else are we reading?
Bihar's landslide verdict cements bullish case for India's political economy
Chart of the Day: Why global sentiment stays strong despite record economic uncertainty
After a spectacular rerating, what next for Fortis Healthcare?
India’s export vision — Near sight clear, far sight blurry
Beyond Freebies: How BJP's social engineering, coalition mastery delivered Bihar's landslide
The Eastern Window: The New Tech Cold War -- China answers Trump with a blitz of innovation
In ending the penny, Trump lightens pockets in a good way (republished from the FT)
Big Tech’s ‘free hit’ era in India will end because of personal data protection rules
India’s push for thorium-based nuclear energy and self-reliance
Markets
Q2FY26 earnings: Defence players log strong quarter as BEL, HAL, GRSE lead growth
Technical Picks: UJJIVANSFB, MAHABANK, IDEA, HINDALCO
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