Markets are trading at 19-20x FY27 earnings, reflecting elevated valuations. Consensus expectations indicate 6-8% earnings growth in FY26 and a sharper 14-16% in FY27, with the latter dependent on removing the additional 25% US tariff (bringing the total tariff back to 25%).
Sector-wise Commentary
Communication Services:Telecom operators reported steady performance, supported by ARPU growth and broadband momentum, even as mobile subscriber additions slowed. Risks remain elevated due to industry balance sheet stress and uneven capacity for capital investment. On the media side, cinema operators delivered in-line results, with profitability expected to return in the upcoming quarters. However, regulatory risks like state-level ticket price caps could challenge premium pricing strategies.
Consumer Discretionary:Automotive companies benefited from premiumization and pricing discipline, though softer volumes and cost pressures constrained overall margins. Management commentary suggests a positive outlook for two-wheelers, passenger vehicles, and tractors, while commercial vehicles are expected to remain subdued.
Policy support, such as potential GST reductions, could stimulate demand. In retail, demand was weak due to seasonal factors and the impact of early monsoons. Apparel and jewellery segments managed margin resilience despite slower growth, while value retailers and quick-service restaurants experienced margin pressures from weaker productivity. Footwear and electronics categories also saw muted demand. The upcoming festive season may provide a temporary boost.
Consumer Staples:FMCG companies reported modest urban recovery alongside relatively stronger rural demand. Sector revenues rose by around 6% year-on-year, though profitability contracted due to raw material inventory pressures, leading to margin compression. Earnings downgrades were more pronounced in the food and personal care categories. Margin pressures will likely persist through the first half of FY26 but should ease in the second half, supporting stronger earnings growth.
Financials:Banks delivered modest earnings, with state-owned institutions outperforming peers, though overall loan growth slowed and margins contracted. Asset quality remained broadly stable, but pockets of stress emerged in MSME and unsecured retail lending. Non-bank lenders underperformed amid growth and asset-quality concerns. In insurance, life players posted steady traditional business growth but missed profitability expectations, while non-life players showed stronger trends. Overall, sector earnings estimates have recently decreased by ~4%, with margins expected to bottom in the second quarter.
Health Care:Pharmaceuticals saw weaker growth due to pricing pressure in international markets, while domestic formulations remained stable. Hospitals continued to deliver strong growth despite drag from new capacity additions, and diagnostics benefited from wellness testing demand and network expansion.
Industrials: The capital goods segment had a strong quarter, led by demand in power and steady international inflows, though private capex remained subdued. Some sub-sectors delivered earnings surprises, while others faced margin pressures. Road construction was weaker due to low order books and weather disruptions, but the tender pipeline is improving. Electricals showed mixed results, with strong growth in cables and wires contrasting with subdued performance in other categories.
Information Technology: The sector had a subdued quarter, with slight revenue contraction despite the seasonally strong period. Mid-tier firms outperformed larger peers, though cost pressures weighed on margins. Deal activity remained healthy, reflecting underlying demand resilience, but management guidance remained cautious due to limited visibility.
Materials:Steel producers saw a sequential improvement in profitability per tonne, supported by favourable raw material trends, though falling steel prices in the second quarter are expected to pressure margins. Cement companies reported robust profitability growth as realisations strengthened during a seasonally weak quarter. A potential GST reduction could further boost medium-term demand.
Real Estate: The sector recorded strong year-on-year pre-sales growth, driven by new project launches. However, broader industry data indicate demand moderation in FY26. Market leadership continues to consolidate toward larger, well-capitalised developers.
Utilities: City gas companies experienced margin pressure due to reduced access to lower-cost domestic gas, though volume growth partly offset the impact. Power utilities reported mixed performance, while energy transition investments supported profitability despite execution challenges.