The June quarter is expected to offer the first full measure of how the West Asia conflict has affected corporate India. Elevated crude oil prices had sparked concerns over rising input costs, margins pressures and yet another disappointing earnings season. However, early results indicate India Inc.'s revenue growth has remained surprisingly resilient, even as profit growth continues to trail.
A Mint analysis of 393 companies that have announced standalone results for the April-June quarter so far shows aggregate total income rose 18% year-on-year, the fastest pace in at least three years. But expenditure climbed an even steeper 26.5%, leaving profit broadly unchanged from a year earlier.
The numbers suggest companies lifted revenue through higher commodity prices, selective price increases and a favourable base, but struggled to convert that growth into profits.
The divergence sharpens once financial companies are excluded. The 310 non-banking, financial services and insurance (BFSI) companies posted a 26% year-on-year growth in total income, the strongest in nearly three years.
But expenditure also jumped 35%, eroding operating profitability. As a result, net profit fell almost 20%, the weakest since Q2FY25, suggesting higher raw material and energy costs more than offset stronger demand.
According to Shripal Shah, managing director and chief executive officer (CEO) of Kotak Securities, companies with stronger brands and pricing power were better placed to protect margins through calibrated price hikes, better product mix and cost-saving measures, while those unable to raise prices absorbed much of the increase in input costs.
Profit squeeze
Among non-financial companies, Reliance Industries, UltraTech Cement, Bajaj Auto, Nestlé India and Eternal have emerged as some of the biggest contributors to revenue growth. But that revenue growth momentum failed to translate into comparable profit growth.
UltraTech Cement, for instance, converted nearly 20% revenue growth into just 7% profit growth as higher raw material and freight costs squeezed margins, the analysis showed.
Reliance Industries, meanwhile, reported nearly 30% revenue growth, but net profit fell 26% due to the absence of last year’s one-off gain from the sale of its Asian Paints stake. Dr. Reddy's Laboratories and Cipla's net profits plunged 86% and 34%, respectively, as the generic Revlimid windfall faded, while InterGlobe Aviation slipped into losses after expenditure surged almost 40% on higher aviation turbine fuel costs due to the West Asia crisis.
The pattern broadly matches brokerage expectations of a narrow earnings recovery in Q1 FY27, led by a handful of heavyweight sectors. Gautam Duggad, managing director and head of sales for institutional equities at Motilal Oswal Financial Services, said financials and metals remain the biggest contributors to profit growth, while losses at oil marketing companies have weighed on aggregate earnings so far.
BFSI momentum
Financial companies continue to tell a very different story. The 83 banking, financial services and insurance (BFSI) firms reported a 6% growth in total income, but expenditure rose just 2%, pushing net profit up almost 25% year-on-year, the strongest pace in two years.
Private sector banks remained the biggest contributors, with ICICI Bank, Kotak Mahindra Bank and Axis Bank reporting 16-26% growth in net profit, helping anchor the Nifty 50's earnings. HDFC Bank, however, lagged peers with a modest 5% increase.
Analysts attributed banks' strong earnings to sharply lower credit costs, healthy loan growth and disciplined cost control, which more than offset the drag from higher deposit costs and narrower net interest margins.
Motilal Oswal’s Duggad said resilient asset quality kept credit costs contained for banks despite geopolitical uncertainty, while some of them have indicated margins could improve in the second half of FY27 as deposit costs moderate.
Non-banking financial companies (NBFCs) have delivered an even stronger start to the year. Large retail-focused lenders have reported earnings growth of 20-35%, supported by 18-25% loan growth and normalisation in credit costs following last year's stress in unsecured lending and microfinance, noted JM Financial Services.
Gold financiers and affordable housing finance companies have outperformed, while lenders with larger microfinance portfolios are also seeing improved collections and lower provisioning. Motilal Oswal expects funding cost pressures to ease as bond yields moderate, supporting margin stability in the coming quarters.
The June quarter performance so far suggests both private banks and NBFCs are benefiting from a favourable credit cycle. However, JM Financial Services noted that sustaining this momentum will increasingly depend on moderation in funding costs and net interest margin expansion rather than further normalisation in credit costs.
Cautious optimism
Looking ahead, Kotak Securities expects resilient credit growth, stronger business activity and rising private investment to support FY27 earnings, while JM Financial Services believes easing crude prices and stabilising funding costs will be key to sustaining the recovery. Meanwhile, Motilal Oswal expects margin pressures to ease from the December quarter as commodity prices normalise, with private banks, NBFCs, metals, telecom and automobiles driving earnings growth for the rest of FY27.
The Street currently expects Nifty 50 earnings to grow about 14% year-on-year in FY27. However, Duggad warned that a prolonged period of elevated energy prices could erode margins further and trigger another round of earnings downgrades.