Nifty-50 peaked a year back in September 2024 and has returned around 1.3 per cent in the last one year. On closer examination, this should be seen as a weak equity performance. As shown in the table, all the major sectors had a bad year with the exception of banking sector. The sector with a large index weightage, performed well, leading to flat index returns, even as other sectors were a drag on the index.
From the peak of September 2024, equities started factoring for multiple headwinds, including an earnings slowdown. In the first half of 2025, tariff wars added to the uncertainty. Following a 6 per cent correction from September 2024 to the end of 2024, another 7 per cent correction followed till April 2025. While markets have recovered since, the high tariffs imposed on India have kept markets volatile. This is despite several positive measures rolled out at the macro level. These include the landmark GST rationalisation, front-ended rate cuts by RBI of 100 bps cumulative, personal income tax cuts, and sustained government spending. In addition to this a strong monsoon supporting the rural economy has also been a positive. These long-term measures will play out gradually on equities (and rightly so) as the earnings impact will be assessed before being priced in. At the onset of Q2FY26 earnings, India Inc seems poised for a better year on account of macro support across beaten down sectors.
Sector performance
Banking sector was in focus even prior to last year as operating metrics were robust and valuations reasonable. The sector outperformance in the last year is an extension of the same despite mounting headwinds. Credit quality and credit growth were seen to be moderating in 1QFY26. But demand from automobile, housing and personal credit are expected to strengthen in view of favourable macro support. NIM compression from Q1FY26 is expected to continue, but a higher credit demand may offset a sharp compression through operational leverage and other measures. Q1FY26 also witnessed a portion of the compression.
The lenders have benefitted from strong asset quality and have also made strong provisions on the balance sheet for any reversal of credit quality. The broader economy restarting on the impetus from higher demand should kickstart the long-awaited private capex that continues to be held back by tariff uncertainty.
IT sector continues its weak run. TCS reported a revenue decline of 3 per cent y-o-y in Q2FY26. The business indicators of client IT spending, project ramp up, and project uncertainty continue to be weak for the sector. The impact from AI is on two counts, internally the companies are building/adopting proprietary AI platforms for faster, economical, and efficient project deliveries and cutting on employee costs. The demand on account of clients’ AI transition is yet to play out, despite US companies reporting trillion-dollar AI projects.
Pharma companies are facing an overhang from US tariffs. But several reports are indicating exclusion of generics from tariffs. The business prospects though are on a firm footing with strong launch portfolios.
Consumer facing sectors can be monitored in the next one year considering the weak performance last year and positive support this year. FMCG sector was on a recovery path prior to the tax cut. The sector leader, HUL, reported that close to 40 per cent of its portfolio witnessed GST rationalisation ranging from mid-single digits to low double digits. The sector already held back on pricing lever to secure volume growth and is expected to pass on the GST benefits for better growth.
The GST cut benefits auto sector as well. The 2W segment expected 6-7 per growth in FY26. The GST rate cut may drive a marginally upward revision post 2QFY26 based on festival demand scenario. The 4W segment in addition to GST rate cuts is poised on strong launch calendar which includes EVs or premium models or both, a strong export market across Africa, Asia and even Europe.
Realty sector faces the most benefit as income tax cut, GST rationalisation in cement and input materials, and 100 bps rate revision directly impact realty demand. The sector is in an upcycle and continues the momentum with such support factors.
Published on October 13, 2025
