Against the backdrop of war and global uncertainty, expectations for the first quarter of FY27 were grim. Yet, India's blue-chip companies may be on track for their strongest top line performance in almost three years, driven largely by higher commodity prices, selective price hikes and a favourable base.
Projections from brokerages Mint reached out to show that the top line of the Nifty 50 companies is expected to grow about 17% year-on-year in the three months ended June, almost thrice the pace in Q1 of FY26.
However, their profits won’t mirror this performance. Profit growth is expected to edge up to 9% from 7.5% a year ago, with higher crude oil prices inflating input costs and keeping the bottom-line growth subdued. Renewed tensions in West Asia have also clouded the FY27 earnings outlook, raising fears of fresh downgrades should crude oil prices remain elevated.
Higher input costs could continue to weigh on margins. Brokerages expect Nifty 50 Ebitda margins to contract by 120-172 basis points from the year-ago period as companies struggle to fully pass on higher raw material and energy costs to customers. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a measure of operating profitability.
BFSI leads again
Experts said Q1’s robust top-line growth might overstate the strength of the underlying recovery because the Nifty 50’s earnings might be driven by a narrow set of heavyweight sectors.
Metals and mining are expected to lead earnings growth with a 35% year-on-year increase, followed by telecom at 21% and IT services at 13%, said Venkatesh Balasubramaniam, managing director and head of research at JM Financial Institutional Securities.
"Private banks, the index's largest constituents, are likely to deliver steady earnings growth of around 8%. Taken together, BFSI (banking, financial services and insurance) is expected to do much of the heavy lifting for the index," Balasubramaniam added.
This is also reflected in healthy credit demand as non-food bank credit growth accelerated to an almost two-year high of 17.4% year-on-year in May, data from the Centre for Monitoring Indian Economy data showed. However, higher deposit costs may continue to pressure banks’ net interest margins and limit profitability, said Ajit Mishra, senior vice-president of research at Religare Broking.
Non-banking financial companies (NBFCs) are expected to fare better, aided by robust growth in gold loans. Choice Institutional Equities expects their gold loan assets under management to nearly double year-on-year in Q1, while Geojit Investments forecasts an about 20% year-on-year growth in both revenue and profit for gold loan and consumer finance-focused NBFCs.
Broadly, the Street expects banks and NBFCs to remain the benchmark index's most dependable drivers of earnings growth in the June quarter.
Profitability pressure
Beyond BFSI, the earnings outlook is far less favourable. Pharmaceuticals are likely to be a major weak spot, with JM Financial forecasting a 16% year-on-year decline in Q1 earnings as the windfall from generic Revlimid sales at Cipla and Dr. Reddy's Laboratories fades.
Shrikant Chouhan, head of equity research at Kotak Securities, expects paints, automobiles, chemicals, oil and gas, and export-oriented businesses to face the sharpest margin pressure from higher crude oil prices. Transportation companies, particularly airlines, are also expected to face profitability pressure from higher aviation fuel costs, Chouhan said.
Uttam Kumar Srimal, a senior research analyst at Axis Direct, said margins of cement companies could come under pressure from higher fuel and freight costs despite healthy volume growth supported by infrastructure spending and improving rural demand.
The pressure, however, is unlikely to be uniform. Companies with strong brands and pricing power should be better placed to protect margins through premiumization, selective price hikes and disciplined cost management, said Shweta Rajani, associate director at Anand Rathi Wealth.
Beyond the June quarter, the Street expects Nifty 50’s earnings to grow about 14% in FY27. But such estimates squarely depend on rural demand and crude-linked volatility for the rest of the year, analysts said.
“If monsoon-related sowing delays don’t materially dent rural income and consumption trends, and crude prices stay range-bound rather than spiking again, earnings should see a gradual pickup through the rest of FY27,” said Devarsh Vakil, head of prime research at HDFC Securities.
Fresh US strikes on Iran had knocked domestic equities lower by around 2% on Wednesday and pushed Brent crude above $79 a barrel, up more than 6% in five days. The escalation dimmed hopes of an early end to the conflict or a full reopening of the Strait of Hormuz, keeping the Street on edge.
JM Financial's Balasubramaniam said expectations of 14-15% earnings growth in FY27, after just 4.5% growth in FY26, leave both his estimates and the broader market consensus vulnerable to meaningful downgrades as the year unfolds.