Nifty companies have delivered a stronger-than-expected start to the first-quarter earnings season, with profits of the 39 index constituents that have reported results so far rising 11% year-on-year, according to domestic brokerage Motilal Oswal. This performance significantly outpaced the brokerage's expectation of 7% growth, demonstrating the resilience of corporate earnings during the quarter. However, the overall earnings picture was significantly impacted by losses in the oil marketing companies sector.
The oil marketing companies' ₹16,600-crore loss has casted a shadow over India Inc's earnings for the first quarter ended June, as reported by Motilal Oswal Financial Services. Indian Oil posted a standalone net loss of ₹1,141 crore, BPCL of ₹3,962 crore and HPCL of ₹11,526 crore. The Indian crude basket averaged $100.7 per barrel, up 21.4% sequentially, while pump prices stayed frozen, forcing marketing under-recoveries and inventory losses. As per Bonanza Research Analyst Nitant Darekar, OMCs' Q1 FY27 losses are cyclical and not structural, but could persist into Q2 FY27 without crude prices falling below $80 and continued calibrated pump price hikes.
The earnings growth has been largely driven by a select group of companies, with Motilal Oswal reporting that Reliance Industries, JSW Steel, ICICI Bank, Bajaj Finance and Axis Bank together contributed 59% of Nifty's incremental earnings. Among large-cap stocks, average earnings growth exceeded expectations with 65 large-cap companies rising 6% year-on-year, against expectations of an 8% decline. In contrast, mid-cap companies saw earnings fall 31%, broadly in line with estimates. However, excluding OMCs, the picture becomes much stronger with large-cap earnings increasing 15% compared to expectations of 11% growth, while mid-cap earnings grew 25%, beating estimates of 20% growth.
On the contrary, InterGlobe Aviation, ITC, Dr Reddy's Laboratories, Cipla and Maruti Suzuki weighed on Nifty earnings during the quarter, according to Motilal Oswal. These companies' underperformance helped offset some of the gains from the top contributors, though the overall earnings growth remained positive despite their impact. The brokerage noted that 20 companies beat analysts' estimates, 13 reported earnings broadly in line with expectations, and 6 missed estimates. Among the key laggards, InterGlobe Aviation declined 32.8%, Dr Reddy's Laboratories fell 19%, Tata Steel dropped 13.4%, Wipro declined 11.8%, and Maruti Suzuki fell 7.5%. Additionally, cement sector declined 8% year-on-year, healthcare fell 6% and IndiGo weighed on overall earnings.
Despite OMC sector challenges, analysts believe the broader earnings momentum remains intact with the beat-miss ratio for the Motilal Oswal universe remaining favourable, as about 49% of companies exceeded estimates while 22% reported misses at the PAT level. The brokerage reiterated its top Nifty picks including Bharti Airtel, SBI, ICICI Bank, M&M, Titan, Eternal, Shriram Finance, Bajaj Finance and InterGlobe Aviation. Looking ahead, Equinomics Research expects corporate earnings may see low double-digit growth in FY27, with the firm being overweight on diversified financials, automobiles, new age tech platforms, manufacturing & industrials, and consumer discretionary sectors. The latest data suggests that Nifty's earnings growth is becoming increasingly concentrated among a few large-cap leaders, raising questions about the sustainability of this trend in future quarters.
