A rise in input costs, fuelled by war-led supply chain disruptions, is likely to have weighed on the financial performance of Indian companies in the January-March quarter of FY26.
Top Indian brokerages expect Nifty 50 companies' profit to grow by an average 4% year-on-year in the March quarter, marking a sharp cooling from the previous quarter, when their net profit had risen 10%. At this rate, the benchmark index is likely to deliver earnings growth of around 6% for FY26, down from earlier expectations of 8–10%, they said.
More worryingly, the outlook for Q4 FY26 remains fragile. As rising input costs begin to bite, the market’s focus has shifted from sustaining December quarter’s growth to how well companies defend profitability. Experts expect the revenue–profit divergence that began widening in Q3 (October–December) to widen further, as elevated crude oil prices compress margins through March.
Brent crude has surged nearly 60% last month since the US–Israel–Iran conflict erupted on 28 February, amplifying cost pressures across sectors.
“This divergence is especially pronounced in global-facing and cost-sensitive industries,” said Devarsh Vakil, head of prime research at HDFC Securities.
Vakil expects fast-moving consumer goods (FMCG) and paints to reel under rising palm oil and polymer costs, while oil-marketing companies grapple with fuel underrecoveries. Export-oriented companies may face higher freight costs, while consumer durables and chemicals remain exposed to inflation hitting discretionary demand.
Selective growth
Brokerage estimates suggest Nifty 50 revenue growth at 10–13% year-on-year in Q4, broadly maintaining Q3’s momentum. But the nature of revenue growth is expected to have changed during the latest quarter.
While festive demand, tax cuts and discretionary spending supported revenues in the October-December quarter, the March-quarter growth is likely to be driven more by higher realisations in metals and energy, even as underlying consumption trends turn uneven. This makes the quality of growth more fragile than the headline numbers suggest.
Shrikant Chouhan, head of equity research at Kotak Securities, said metals and mining should see a strong quarter, aided by higher copper and aluminium prices, while information technology services may get margin support from the rupee’s continued weakness against the US dollar.
Tata Consultancy Services last week reported a 12% year-on-year rise in net profit for Q4, bouncing back from Q3’s near-14% fall. The IT giant was aided by currency tailwinds, improved operational efficiency, and the absence of one-off labour code costs which had weighed on the previous quarter’s bottom line.
But from Nuvama Institutional Equities to Axis Securities and JM Financial Services, there is broad agreement that the era of operating leverage-driven earnings growth is over. Companies are entering a phase where rising raw material costs are harder to pass on, especially in an uneven demand environment.
The consensus suggests festive momentum has faded, with consumers shifting from discretionary to essential spending. Consumer durables and apparel, which saw strong demand in Q3, have witnessed a post-festive slowdown. Nuvama flags FMCG as a weak pocket, with earlier margin cushions gone and growth now reliant on soft volumes. Cement and other building materials may also face pressure due to weak pricing power.
Automobiles remain the lone area of conviction. JM Financial expects a 25% year-on-year profit growth for the sector, driven by rural recovery and premiumisation.
However, Seshadri Sen, head of research and strategist at Emkay Global, cautioned that while auto volumes are holding up, margins could come under pressure as companies absorb earlier increases in metal and commodity costs before passing them on.
BFSI momentum
The banking, financial services and insurance (BFSI) sector is expected to remain the anchor of Nifty 50’s earnings growth in Q4, but the nature of growth within the sector is changing. Motilal Oswal Financial Services expects non-banking financial companies (NBFCs), particularly those focused on gold and vehicle financing, to report a 30% year-on-year rise in net profit—the strongest in 10 quarters. Brokerages expect private banks to outpace public sector peers, as PSU bank net interest margins (NIM) stabilise and credit costs normalise.
Sen expects banking NIMs to “nearly bottom out” in Q4 after December’s rate cut, but cautioned that credit demand and asset quality in micro, small and medium enterprises (MSMEs) could emerge as concerns, given their vulnerability to war-led disruptions in energy supply and raw material availability.
Ajit Mishra, senior vice-president of research at Religare Broking, said that while credit growth remains healthy, BFSI profit growth is no longer strong enough to offset broader market weakness.
“If input-cost pressures and global volatility persist, the market may have to contend with further FY27 downgrades,” Mishra said.
Following the West Asia conflict, the Street has already cut FY27 earnings growth estimates by 4–5 percentage points. What was earlier pegged at around 16% is now expected to moderate to 10–12%.
Taken together, the March quarter is likely to be an inflection point. The easy gains from margin expansion appear to be over, and revenue growth alone may not be enough to drive earnings meaningfully higher. As India Inc closes FY26, the focus is shifting from expansion to resilience.