Indian Inc reported results that left a little more to be desired in the first quarter of FY26. The 955 companies that reported results till August 1 reported revenue and PAT growth of 7.5 and 6.3 per cent YoY. Excluding BFSI, revenue and PAT growth stood at 6.7 and 8.4 per cent, respectively, for the 793 companies. While FMCG, Construction materials and Refineries are recovering from weak earnings a few quarters back, Banks, Automobiles and Pharmaceuticals are moderating from high growth.
The overall modest growth also belies the ‘eventful’ year ahead. Firstly, the intensified tariff rhetoric is expected to impact Pharma, Auto components directly and the IT segment through uncertain global economic spending. Domestically, rate cuts, tax cuts, and better monsoons are expected to drive consumption on which a host of industries – FMCG, construction, automotive, and even Banks are hinged on.
Moderating segments
Banks are facing compression of Net interest margin to the tune of 20-30 bps that has started on account of the rate cuts and is expected to continue into Q2FY26 at least. Credit growth is lower in comparison to earlier periods but remains modestly healthy. Segments like home loans are doing fine, while unsecured lending is being actively contained. Growth in corporate credit remains below expectations. Slippages and NPAs are inching upwards but are still at acceptable levels. Banks are proactively building provisions in a conservative move to shield from an anticipated mean reversion of NPAs.
For Automobiles, domestic volumes growth turned sluggish for PV except for new launches. Realisations improved on the back of the product mix that continues to gravitate to SUVs. Emission targets will be coming into focus as OEMs focus on powertrain mix (hybrids, EVs, and ICE) and will necessitate continued investments. Exports continue strong growth led by Africa, Japan (Maruti) and non-US markets. The rural-led growth is evident across 4W and 2W markets, but is more pronounced in the latter. In the sector, secular growth across companies is transitioning to specific drivers of launches, power train mix and export focus.
Tariffed Segments
The pharma segment is under pressure in the US markets, despite strong portfolios in the US. US tariffs are impending, and the anchor product (gRevlimid) is gradually losing exclusivity. India’s growth remains strong and is a strong offset to US challenges, along with RoW markets.
India, being the leading generics provider to the US and generics accounting for 90 per cent of the prescription volumes in the US, there is a case to expect exemptions. In the absence of exemptions, US manufacturing (Aurobindo, DR. Reddy’s and Lupin), focus on low-competition specialities (Sun, Cipla, and Biocon), or India/EM focus (Mankind, Torrent Pharma) will be the offsets.
IT recorded weak growth across verticals and geographies owing to delays in client decision-making. Managements attributed tariff-related uncertainties as a factor. Despite comparatively better order books, revenue conversion remains weak. The expectations of return to better growth are still not in discussions, with growth estimates hovering at low single digits for FY26. Management comments in earnings calls indicate they are attempting to deal with AI-induced deflation in billing , by deploying AI enterprise platforms to drive internal efficiency.
FMCG should gain from rural-led recovery in volumes. Gradual recovery is expected in 2HFY26 with a trickle-down of tax and rate cut impact, which should revive the urban segment as well. Margins continue to be under pressure with the added cost of promotions/spending to counter emerging competition from established competition and e-commerce reliant standalone brands.
Leading the charge
Construction materials, including steel and cement, are facing better prospects from improving realisations and demand. In cement, Ambuja now expects demand growth to improve 100bps to 7.5 per cent for FY26. The slowdown in materials started from the election season last year and remained subdued since then, which forced consolidation and opex improvements. This will be a further tailwind to earnings. Steel prices, which have been slipping in the last two years, are expected to stabilise with the imposition of import duties.
Refineries and Power Generation are expected to perform well. The improvement in gross refining margins is a cyclical support despite lower crude prices. The seasonal impact of lower power demand impacted power generation, which is continuing to build and serve consistently rising demand.
Overall, a pickup in economic activity is needed to drive broad-based consumption and corporate growth. The recent quarters have been mixed, with strong performance in some sectors being neutralised by weakness in others. As a result of this, double-digit earnings growth has remained elusive in recent quarters.
Improvement in corporate capex, de-escalation in tariff and geopolitical wars are some of the factors that investors must hope for.
Published on August 2, 2025
