Earnings Growth Expected to Improve in Q1 FY26: Midcaps to Lead the Way

The Q1 earnings season in India is expected to mark a turning point in growth, with midcaps likely to continue strong growth momentum. Largecaps may slowly improve earnings growth, but nothing dramatic is anticipated. Nifty50 earnings are forecast to grow 4-5% YoY in Q1, lower than the 10% forecast for FY26. Some sectors, such as EMS, real estate, and cement, may see significant growth, while others, like auto OEMs and metals, may face declines.

Title: Q1 Earnings Season in India: Midcaps Expected to Lead Growth, Nifty50 Faces Mixed Performance

The Q1 earnings season in India is poised to mark a significant turning point in corporate growth, with midcaps expected to continue their strong growth momentum. While largecaps are anticipated to slowly improve their earnings growth, dramatic improvements are not expected. Nifty50 earnings are forecast to grow by 4-5% year-over-year (YoY) in Q1, which is lower than the 10% forecast for the full fiscal year 2026 (FY26) [1].

The earnings season is expected to exhibit a mixed trend initially, with midcaps leading the way. According to Motilal Oswal, this quarter could be the inflection point toward sustainable double-digit growth over the next four quarters. Antique Stock Broking expects mid and small-cap companies to report a relatively stronger profit after tax (PAT) growth of 22.4% YoY, with overall margins improving from 21.8% in June 2024 to 23.6% in June 2025 [1].

The broader Nifty50 index, however, faces a more challenging quarter, with earnings likely to grow by just 4-5% YoY in Q1. This growth rate is much lower than the 10% forecast for FY26, potentially prompting earnings cuts for some companies. Axis Securities expects relief from the intensity of earnings-related concerns, with a slowdown in downgrades anticipated [1].

Certain sectors are expected to perform exceptionally well. Electronics Manufacturing Services (EMS) could see a 46% growth, while real estate developers may surge by 40% and cement companies could deliver 35% profit jumps. Retail, logistics, and healthcare are also expected to post double-digit gains, with telecom finally turning the corner from losses to profits [1].

Conversely, auto OEMs face a brutal 10% earnings decline, metals companies are bracing for 4% drops, and consumer goods, banking and financial services, and technology sectors are expected to struggle with anemic single-digit growth. Motilal Oswal's optimistic outlook suggests the remainder of FY26 will see much stronger growth, with the bottom-up aggregate of analyst estimates suggesting a 12%/15%/14% YoY growth in 2Q/3Q/4Q FY26 PAT for the MOFSL universe and 6%/13%/16% YoY growth in NIFTY PAT [1].

While the immediate quarter may show mixed results, the consensus points to a gradual recovery gaining momentum in the second half of FY26. The key will be watching whether midcaps can indeed deliver on their promise of outperformance, and if the much-anticipated slowdown in downgrades materializes as earnings season unfolds [1].

References:
[1] https://m.economictimes.com/markets/stocks/news/q1-results-season-begins-pace-of-downgrades-may-slowdown-top-nifty-midcap-smallcap-stock-ideas/articleshow/122355713.cms