Corporate earnings for 1QFY26, referred to as the “Crossover quarter,” indicated a shift from the modest low single-digit earnings growth of FY25 to a consistent trajectory of double-digit growth, according to Motilal Oswal Financial Services (MOFSL).
MOFSL believes that a significant aspect of this quarter was the improved sectoral breadth of earnings growth.
In the MOFSL coverage universe, large-cap companies (87 in total) achieved an earnings growth of 10% Year-over-Year (YoY), which is consistent with the overall universe. Mid-cap companies (92 in total) continued their strong performance from the previous two quarters, delivering impressive earnings growth of 24% Year-over-Year, surpassing our estimate of 20%.
Conversely, small-cap earnings declined by 11% YoY, contrasting with their expectation of flat growth, with 46% of the coverage universe failing to meet their projections.
As per the brokerage, the highest earnings upgrades projected for FY26E include Tata Consumer (9.7%), Apollo Hospitals (6.5%), Eicher Motors (3.8%), Hero MotoCorp (3.5%), and IndusInd Bank (2.6%). The most significant earnings downgrades anticipated for FY26E are Eternal (-35.4%), ONGC (-10.2%), Axis Bank (-8.7%), Power Grid Corp. (-5.3%), and Sun Pharma (-5.1%).
EPS Growth Estimates
MOFSL pointed out that the projected growth in EPS for Nifty-50 is expected to reach around 9% in FY26, compared to a sluggish 1% in FY25, supported by an anticipated enhancement in the macroeconomic landscape due to supportive fiscal and monetary policies.
“The Nifty 50 EPS estimate for FY26 was reduced by 1.2% to ₹1,108, largely owing to ONGC, Reliance Industries, Axis Bank, Power Grid Corp, and HDFC Bank. FY27E EPS was also reduced by 0.9% to ₹1,296 (from ₹1,308) due to downgrades in ONGC, Reliance Industries, Axis Bank, Eternal, and Power Grid Corp,” said the brokerage.
Views & Valuations
As per the brokerage, the earnings of 1QFY26 have largely aligned with expectations, showing a reduction in the intensity of earnings cuts compared to earlier quarters, although the pattern of increased downgrades persists this quarter.
Despite the Indian equity market experiencing fluctuations over the last two months due to tariff concerns, they maintain that the potential for improved earnings and reasonable valuations (excluding small-caps) should allow the market to secure moderate growth. The brokerage asserts that the impact of the US tariff disputes on Indian markets will be minimal. Currently, the Nifty 50 is trading at 22.2x FY26E earnings, which is close to its long-term average of 20.7x.
Model Portfolio
MOFSL’s model portfolio continues to favor large-cap stocks, holding a weight of approximately 70%, but has become more optimistic about mid-cap stocks, increasing their weight to 22% from 16% due to improved earnings performance and better outlooks.
They are overweight in sectors such as BFSI, Consumer Discretionary, Industrials, Healthcare, and Telecom, while they are underweight in Oil & Gas, Cement, Real Estate, and Metals.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.
