As the fourth quarter numbers of FY26 begin to trickle in, early trends point to headline profit resilience, largely driven by financials, particularly banks. Across non-financial industries such as consumer and IT, revenue growth has held up, but profits are already under pressure, signalling a broader margin squeeze ahead.
With uncertainty around the West Asia conflict persisting, Dalal Street remains cautious, as investors brace for the full impact of rising input costs to flow through to profitability from the June quarter.
A Mint analysis of 220 early results shows total income rose 3.4% year-on-year, a sharp slowdown from 12% in the December quarter for the same set of companies.
However, even as core operations (net sales) rose nearly 9% y-o-y to a seven-quarter high, overall topline was weighed down by a 65% fall in non-core (‘other’) income, driven by treasury losses as bond yields hardened amid the West Asia conflict in March.
Meanwhile, aggregate net profit for the 220 companies rose 10% y-o-y, but the gains were largely driven by banks, masking pressure on non-financial companies amid a sharp rise in costs.
Further, a 50% spike in crude oil prices in March drove raw material and service costs higher, leading to a 13% year-on-year and 20% sequential surge in overall expenses, limiting the benefit from the absence of the previous quarter’s one-off labour code adjustments.
Mitesh Dalal, head of broking at Sanctum Wealth, noted that most firms were still consuming lower-cost inventory through much of the quarter, with the crude spike largely concentrated in March. This implies that margins are likely to be under greater pressure from the June quarter, when higher-cost inventory begins to flow through.
Demand resilience
To be sure, non-financial companies—including those in consumer and IT sectors—already felt the bite in Q4.
While they delivered around 10% growth in total income, profit growth lagged at 4.5% as margins came under pressure. Net margins slipped 30 basis points from the previous quarter to 11.4%, the lowest in seven quarters.
This suggests that while demand is holding up, translating it into earnings is getting increasingly difficult for India Inc. Yet, some managed to buck the trend: Nestlé India and Trent, defended margins through more premium offerings and resilient urban discretionary demand.
“The consumer sector has been a positive surprise, with several companies reporting an acceleration in volume growth,” Dikshit Mittal, senior equity fund manager at LIC Mutual Fund said. “Going forward, we expect financials, industrials, and the consumer sector to continue to perform well (in Q4).”
However, Aditya Khemani, fund manager at Invesco Mutual Fund, warned that rising oil prices could strain the nascent consumption recovery in the near term.
Margin squeeze
Digging deeper, IT emerged as the clear laggard. Despite an 8% y-o-y growth in total income, aggregate profit growth for the 21 early reporters was flat at 1%, reflecting persistent margin pressure. Experts attribute this to weak discretionary spending from clients, vendor consolidation, and artificial intelligence (AI)-led pricing deflation.
“While AI is improving delivery efficiency, clients are demanding that these gains be passed on through lower billing rates, limiting near-term margin expansion,” said Dalal of Sanctum Wealth.
At the same time, elevated costs over recent quarters have further weighed on profitability, pushing margins down to the 16–17% range from 18–19% a year ago.
Dalal highlighted that near-term benefits of AI are accruing more to clients than service providers, even as order books remain intact but slower to convert into revenues.
BFSI resilience
Against this backdrop, financials have emerged as the key stabiliser. Banks, financial services and insurance (BFSI) companies—comprising 62 early birds—reported a 16% y-o-y rise in profits, aided by a sharp 18% reduction in expenses. However, total income declined marginally following a 96% collapse in other income.
Banks emerged as the bright spot in the BFSI segment, with experts noting that improving asset quality and lower credit costs have bolstered their profitability, even as net interest margins remained under pressure from lower rate transmission.
“Financial sector results have begun on a strong note, with healthy credit growth visible across large and small banks and NBFCs (non banking financial companies),” said Khemani of Invesco Mutual Fund, adding that the banking system is currently seeing the strongest asset quality in two decades.
Broader outlook
However, the broader Q4 trajectory remains uncertain. Earnings from major manufacturing companies are still to come in, where margin pressures are expected to be sharper than in the services sector, cautioned Mittal of LIC Mutual Fund.
“With geopolitical tensions persisting, India Inc. is likely to maintain a cautious stance in its near-term guidance,” he added.
For now, early birds suggest that India Inc may navigate a volatile environment in Q4 without major earnings shocks. However, Dalal of Sanctum Wealth warned that with the Street typically lagging earnings revisions and El Niño weighing on staples demand, Nifty earnings remain at risk of downgrades.
Experts further cautioned that a prolonged conflict in West Asia beyond the June quarter could trigger deeper downgrades to FY27 earnings, which have already been revised down to 10–12% from an earlier 16%.