India Inc's earnings growth expectations have taken a significant hit due to the Iran war, with profit growth estimates for FY27 dropping by over 700 basis points to 9.2% from the February consensus of 16.5%, according to the latest National Stock Exchange Market Pulse report for September. The revision covers 200 companies with wide coverage and reflects the impact of higher energy and raw material costs since the conflict began. The energy sector was worst affected, with consensus estimates falling from 2% growth in February to -16.9% in September, while consumer staples dropped from 9.8% to -3.8% and other key sectors saw declines of 100-500 basis points.
Indian bluechip companies are poised to deliver exceptional earnings performance in Q2FY27, with Nifty 50 companies expected to post a nearly 23% year-on-year rise in net profit, according to major domestic brokerage estimates. This would mark the strongest earnings growth for India's blue-chip companies in four quarters, even as analysts expect momentum to moderate in the second half of the fiscal year amid rising cost pressures. The earnings surge comes despite significant underperformance in major bluechip stocks over the past five years, with TCS falling nearly 42%, Infosys declining almost 39%, and Hindustan Unilever and Asian Paints dropping about 32% and 30% respectively. As per The Economic Times, the average decline across these nine bluechip stocks spans some of India's largest technology companies, most valuable consumer franchises, leading financial institutions and one of the country's most diversified conglomerates.
The Iran war-driven input cost pressures have created significant headwinds across sectors, with energy, freight, metals, chemicals and imported components becoming more expensive, according to an Axis Securities report. Currency depreciation adds another layer of cost pressure for import-dependent businesses, forcing companies to respond through cost-cutting initiatives and price increases. The real estate sector bucked the trend, with earnings growth upgraded by 350 basis points to 28.1% for FY27 from 24.6% projected in February, amid sustained demand for premium housing. However, increased prices of food and fuel, along with elevated costs of higher-ticket items like automobiles and durables may adversely affect domestic demand in coming quarters, as noted by PL Capital.
The underperformance reflects a major change in market leadership, as reported by The Economic Times. For much of the last cycle, large-cap stocks were the preferred route to participate in India's growth story, with investors paying premiums for size, balance sheet strength, brand power and predictability. However, the market's preference later shifted towards smaller companies, manufacturing, defence, capital goods and other high growth themes, leaving traditional index heavyweights behind. Prashant Jain of 3P Investment Managers noted at the ET Alpha Wealth Summit 2.0 that these are some of the finest businesses, mega caps some of them, and that they are extremely attractive, with some of these stocks being owned for the first time in the last 25 years due to previous high valuations.
The financial sector presents mixed opportunities, with HDFC Bank's underperformance reflecting market wait for post-merger reset, while investors remain concerned about margins and deposit costs. PL Capital remains overweight on banks, citing strong credit growth and controlled credit costs. HDFC Life faces challenges in maintaining growth in annual premium equivalent while preserving margins, with bank distribution remaining critical. Bajaj Finserv depends on lending businesses growing while keeping credit costs under control. According to Jefferies analysis reported by The Economic Times, this represents among the lowest PEG levels seen over the past decade, with risk-reward becoming more favourable as valuation gap with mid-caps narrows and earnings-growth gap reduces over FY26-FY28. Looking ahead, consensus earnings growth for FY28 rose from 14.3% in February to 17.2% in September, with the financial sector expected to account for 40.8% of incremental earnings during FY26-28, followed by consumer discretionary at 13.1% and industrials at 11.3%.
