Banks and FMCG sectors faltered in Q1 FY26, while cement and defense sectors exhibited growth, indicating potential recovery indicators ahead.
India Inc's Q1FY26 Earnings: Subdued Growth Amid Challenges
India Inc's Q1FY26 earnings performance was marked by weak revenue growth and margin contraction in key sectors such as banks, IT, and FMCG. This was primarily due to project delays, tariff concerns, and rising costs, which resulted in flat or low growth and pressured earnings margins.
Banks, IT, and FMCG Sectors Under Pressure
The banking sector faced weak sales and earnings growth amid a cautious economic environment, contributing to the subdued earnings. The IT services sector saw revenue remain flat due to project delays arising from tariff concerns and geopolitical uncertainties. The FMCG sector experienced margin declines driven by cost pressures.
Overall Performance and Expectations
India Inc’s revenue growth moderated to 4-6% year-on-year in Q1FY26, down from about 7% in previous quarters. EBITDA growth was modest at 4%, but EBITDA margins declined by 10-30 basis points, notably due to weakness in IT, automobile, FMCG, and pharmaceutical sectors.
The earnings performance across India Inc showed its slowest profit growth in eight quarters, with net profit rising only 5.4% year-on-year and even declining sequentially by 17%, the steepest drop in 20 quarters.
Regarding expectations for the September quarter (Q2FY26), early signals point to continuing challenges driven by lingering geopolitical uncertainties, tariff concerns, and macroeconomic conditions. Most brokerages have lowered forward earnings estimates for FY26 and FY27 at both the market level and individual firm levels, indicating subdued or cautious outlooks.
Sector-wise Analysis
| Sector | Reason for Subdued Q1FY26 Performance | Impact on Earnings | |-----------|---------------------------------------------------------------------------------|------------------------------------------| | Banks | Weak sales and cautious economic conditions | Lower profit growth, weak earnings | | IT | Project delays due to tariff concerns, geopolitical uncertainties | Flat revenues, margin decline | | FMCG | Rising costs leading to margin contraction | Margin decline affecting profits |
Bright Spots and Challenges Ahead
While some sectors like auto, construction, and pharma showed pockets of growth, the overall improvement in earnings is expected to be gradual and modest in the near term. The information technology sector remained a weak spot, with revenues falling 1% sequentially in constant currency terms.
Lenders delivered mixed results, with large private banks such as HDFC Bank and ICICI Bank posting better earnings, but Axis Bank and Kotak Mahindra Bank disappointing due to higher slippages and credit costs. The auto makers posted an average earnings growth of around 11-12%. Hospitals, including Apollo, Fortis, Max, and Medanta, recorded 18% growth in operating profit.
Employee costs grew 7.7%, continuing a trend of sub-10% growth for seven quarters in a row. India Inc reported a weak performance in the June 2025 quarter, with banks, IT, and consumer staples underperforming, while cement, autos, defense, and hospitals provided support.
Looking Forward
Analysts at Jefferies noted that earnings growth, excluding Oil and Gas, metals, declined to a post-COVID low of 3% Year on Year. FMCG margins are under pressure from high input costs. However, Jefferies expects earnings recovery from the September quarter. Reliance Industries' EBITDA rose 11% due to its telecom business and margin gains. TVS Motor reported a 36% jump in profits.
In summary, while the Q1FY26 earnings performance was subdued, the outlook for the September quarter (Q2FY26) remains uncertain due to lingering geopolitical uncertainties, tariff concerns, and macroeconomic conditions. Sectoral recovery may remain uneven, dependent on macroeconomic and geopolitical developments.
