Nifty bulls hoping for double-digit earnings growth may have to wait another quarter, as the Q2 results season, starting Thursday with TCS leading the pack, is expected to deliver further disappointment. The Nifty posted 8% year-on-year PAT growth in Q1 FY26, marking the fifth consecutive quarter of single-digit earnings growth.
Domestic brokerages expect Nifty earnings to grow modestly, between 6-8%. With the index still trading above long-term averages, near-term upside may be limited, as investors await meaningful earnings growth before FIIs make a strong return.
“We expect Q2 earnings to remain lacklustre, largely reflecting muted demand trends,” said Trideep Bhattacharya, President & CIO–Equities at Edelweiss Mutual Fund. “However, we believe management commentary will set the stage for a stronger second half of FY26, as the festive season should drive meaningful demand recovery across sectors. From Q3 onwards, earnings growth is expected to return to double digits, led by consumption, autos, and financials, marking an inflection point in the earnings cycle.”
Domestic brokerage firm Motilal Oswal expects earnings of its coverage universe and Nifty to grow 9% year-on-year and 6% year-on-year, respectively, during the quarter. “Excluding financials, the earnings are expected to jump 16% YoY and 10% YoY, whereas, excluding global commodities (i.e., Metals and O&G), the MOFSL Universe and Nifty are likely to report 6% and 4% YoY growth in earnings, respectively, for the quarter.”
“The overall earnings growth is expected to be modest, anchored by O&G (+25% YoY), NBFC-Lending (+21%), Telecom (loss-to-profit), Metals (+10%), Technology (+6%), Cement (+62%), Capital Goods (+14%), and Healthcare (+10%),” the brokerage said. “These sectors are likely to contribute 95% of the incremental YoY accretion in earnings. Conversely, both Private Banks (-7%) and PSBs (-7%) are expected to weigh on earnings.”
Nuvama forecast Q2 top-line growth at 6% YoY for its coverage (excluding OMCs), down from 8% YoY in Q1 FY26, marking a tenth consecutive quarter of sub-10% growth. “Overall, earnings recovery remains elusive. Nifty EPS is likely to grow 8%, with downgrade risks for FY27 as US tariffs narrow the US current account deficit, affecting global trade, which influences two-thirds of BSE500 top line. GST cuts may spur consumption, but may not fully offset external headwinds.”
All eyes on Q3 recovery
The consensus view is that the earnings cycle is bottoming out, with growth likely to pick up into double digits Q3 onwards as the low base effect starts to show up and demand picks up following GST rate cuts. Motilal has predicted 12% YoY growth in Q2 and annual PAT growth of 11%/14% YoY in FY26/FY27.
The earnings cut cycle has already started to ease, with the latest quarterly cuts at a more modest 1-2% range, it said.
SBI Mutual Fund’s Nidhi Chawla echoed the optimism. “Earnings are expected to improve to 9-10% in FY26, up from 1% in FY25, as reflected in a modestly better Earnings Revision Index. However, growth hinges on India’s economic revival and revival in topline growth to meet the expectations. GST rationalization is likely to boost consumption from H2 FY26, so Q2 earnings may stay muted, with better growth expected from Q3 onwards.”
Axis Securities said all hopes are on an earnings recovery in H2 FY26, expected to be driven by fiscal and monetary reforms by the government and RBI. The impact of the GST cut is also likely to be visible in the second half. Overall, FY26 is expected to outperform FY25, with more promising numbers from Q3 FY26, supported by base effects, improving high-frequency indicators, higher government spending, and a pick-up in consumption.
After Q1 FY26, Axis downgraded its FY26/27 Nifty earnings expectations by 3.8% and 3.2%, respectively. Most downgrades were in IT (muted guidance), BFSI (NIM compression due to rate cuts), and Pharma, while Cement saw upgrades due to improving profitability trends. Earnings for BFSI and IT sectors are likely to bottom out in Q2 FY26.
However, not all are convinced the recovery will materialize. Nuvama flagged high downgrade risks for FY27, where consensus expects 15% EPS growth. They cautioned that US tariffs may narrow the US CAD, deflationary for global exports, potentially affecting two-thirds of the BSE500 top line. Weak global growth could broadly impact domestic cyclicals as corporations scale back costs and capex. While GST cuts may partly offset this, they are unlikely to fully counter global headwinds.
Nuvama advised investors to monitor commentary on global macros post-tariffs, festive demand post-GST cuts, and BFSI asset quality.
Axis Securities also revised its March 2026 Nifty target to 25,500, valuing it at 20x on March 2027 earnings, noting upside risk if earnings upgrades materialize from Q3 FY26. They highlighted that India’s VIX is below its long-term average, indicating a neutral market environment. While the medium- to long-term outlook remains positive, short-term volatility is possible. Axis recommends maintaining 10–15% liquidity to capitalize on dips and build positions in high-quality companies with strong earnings visibility over a 12–18 month horizon.
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