Strong Performance from Autos, Telecom and Cement Lifts Earnings Outlook, Yet Risks from Crude Oil, Inflation and Global Uncertainty Persist

India Inc closed FY26 with a mixed but encouraging earnings season, prompting brokerage firm JM Financial to raise its earnings growth forecasts for the Nifty50 over the next two financial years. However, despite the improved outlook, the brokerage remains cautious, highlighting that repeated earnings downgrades in recent years suggest investors should not become overly optimistic.

The fourth-quarter earnings season revealed a widening gap between sectoral winners and losers, with automobiles, telecom, cement and consumer-oriented businesses emerging as clear outperformers. At the same time, pharmaceuticals, oil & gas and aviation sectors struggled to meet expectations, underscoring the uneven nature of the corporate earnings recovery.

While Nifty50 earnings growth is expected to accelerate sharply in FY27, analysts believe several macroeconomic risks could still challenge current forecasts.

A Better Quarter Than Expected

According to JM Financial, Nifty50 companies reported earnings-per-share (EPS) growth of 4.4 per cent year-on-year during the fourth quarter of FY26, broadly matching market expectations.

Although the headline growth figure appears modest, it represented a notable improvement considering the challenging business environment faced by companies during the year. Excluding financial companies, earnings growth stood at 1.4 per cent, reflecting the ongoing pressure on several sectors of the economy.

The earnings season also highlighted a significant divergence in sectoral performance. While some industries benefited from improving demand and pricing power, others continued to grapple with margin pressures, weak global demand and rising costs.

Internet, Telecom and Cement Lead the Earnings Growth Race

Among major sectors, internet companies delivered the strongest earnings growth, with profits surging 346 per cent year-on-year. Telecom companies followed with growth of 38 per cent, supported by tariff hikes and improving operational efficiencies.

The cement sector emerged as another major outperformer, posting earnings growth of 32 per cent as pricing discipline and easing input costs boosted profitability.

Consumer retail businesses recorded earnings growth of 28 per cent, reflecting resilient urban demand and improving consumption trends. Utilities and automobile companies also delivered strong performances, each reporting profit growth of around 26 per cent.

These sectors played a critical role in supporting overall market earnings during the quarter.

Aviation Sector Emerges as the Biggest Disappointment

While several sectors exceeded expectations, aviation remained the weakest performer of the quarter.

The sector reported a staggering 174.6 per cent decline in earnings compared with the previous year, largely due to elevated fuel costs, operational challenges and intense competitive pressures.

Pharmaceutical companies also disappointed investors, with earnings falling significantly short of analyst expectations. Oil and gas companies faced margin pressures amid commodity price volatility, while some internet companies failed to justify the high growth expectations built into consensus estimates.

The divergence between winners and losers highlights the increasingly selective nature of earnings growth across India's corporate landscape.

Sectoral Beats and Misses Reveal Changing Market Leadership

JM Financial's analysis shows that utilities emerged as the biggest earnings surprise of the quarter, beating estimates by nearly 39 per cent.

Consumer-oriented companies and cement manufacturers also outperformed expectations by 7.9 per cent and 4.7 per cent respectively.

On the other hand, pharmaceutical companies missed earnings estimates by approximately 23 per cent, making them the largest disappointment of the season. Oil and gas companies and internet businesses also reported earnings below market expectations.

The results indicate that investors may need to reassess sector preferences as leadership within the market continues to evolve.

FY27 Earnings Outlook Gets an Upgrade

Following the stronger-than-expected fourth-quarter results, JM Financial has raised its earnings forecasts for both FY27 and FY28.

The brokerage increased its FY27 Nifty50 EPS estimate by 2 per cent and marginally raised FY28 projections. As a result, FY27 earnings growth is now expected to reach 17.1 per cent, compared with the earlier forecast of 15.1 per cent.

For FY28, earnings growth is projected at 17.6 per cent.

If achieved, these figures would represent a dramatic improvement compared with the earnings growth recorded over the previous two financial years.

However, analysts caution that investors have heard similar projections before.

Why Investors Should Remain Cautious

One of the key concerns highlighted by JM Financial is the poor track record of earnings forecasts in recent years.

At the start of FY25, analysts had expected Nifty50 earnings growth of around 15 per cent. Actual growth eventually came in at only 3.4 per cent.

Similarly, expectations for FY26 initially ranged between 12 and 15 per cent, but actual earnings growth ended at just 4.5 per cent.

These repeated downgrades have made investors increasingly sceptical about optimistic projections.

The brokerage warns that current forecasts may once again face pressure from several macroeconomic challenges, including elevated crude oil prices, inflation risks, slowing global growth and geopolitical uncertainties.

Private Banks Hold the Key to FY27 Growth

A major portion of FY27 earnings expectations rests on the performance of India's private banking sector.

Private banks account for more than 31 per cent of Nifty50 profits, making them the single most influential sector in determining overall index earnings growth.

JM Financial expects private banks to deliver approximately 13 per cent profit growth during FY27, providing a stable foundation for broader earnings expansion.

Any disappointment from the banking sector could significantly impact overall market earnings expectations.

Autos, Metals and Telecom Expected to Drive Growth

The brokerage believes five sectors will perform the "heavy lifting" required to achieve the projected 17.1 per cent earnings growth in FY27.

Automobile companies are expected to lead with profit growth of approximately 55 per cent, followed by telecom firms at 44 per cent and metals & mining companies at 36 per cent.

Non-banking financial companies (NBFCs) are projected to report earnings growth of 32 per cent, while infrastructure companies are expected to grow profits by around 19 per cent.

Together, these sectors are anticipated to contribute a significant portion of the earnings expansion expected over the next financial year.

Small-Cap Companies Face Greater Earnings Pressure

An interesting trend emerging from the earnings season is the higher proportion of disappointments among smaller companies.

Among Nifty50 companies, 40 per cent exceeded analyst estimates while 32 per cent missed expectations.

However, when companies were grouped by market capitalisation, small-cap firms showed the highest percentage of earnings misses at 33 per cent.

Large-cap companies recorded a miss ratio of 29 per cent, while mid-cap companies performed relatively better with only 18 per cent missing estimates.

The trend suggests that despite strong market performance in recent years, earnings pressure remains more pronounced among smaller companies.

What Investors Should Watch Going Forward

The coming quarters will determine whether FY27 can finally become the year when earnings growth matches market expectations.

Investors will closely monitor crude oil prices, inflation trends, global economic conditions and domestic consumption patterns. The pace of government infrastructure spending, banking sector asset quality and foreign investor flows will also play important roles in shaping corporate profitability.

While the latest earnings season has undoubtedly improved confidence, history suggests that expectations can change quickly in response to evolving economic conditions.

The Bottom Line

The Q4FY26 earnings season provided much-needed relief for investors, with stronger performances from key sectors leading JM Financial to raise its earnings forecasts for FY27 and FY28. However, recent years have demonstrated that ambitious earnings projections often face significant downgrades as the year progresses.

For now, automobiles, telecom, metals, NBFCs and infrastructure companies are expected to drive the next phase of earnings growth, while private banks remain the backbone of India's corporate profit outlook. Whether these sectors can deliver on expectations amid rising global uncertainties will determine if FY27 finally becomes the breakout year that investors have been waiting for.