Indian corporate earnings in the second quarter of fiscal 2025-26 are set to reflect strong sectoral divergence, with autos, metals, and oil marketing companies (OMCs) driving growth while BFSI, construction, and textiles face pressure, according to a report by Equirus Securities. Its sectoral earnings preview indicates that revenues across its covered companies are likely to grow 9 per cent in Q2FY26, with EBITDA and profit after tax (PAT) also up by 9 per cent.
Excluding BFSI, EBITDA and PAT growth accelerate to 16 per cent and 19 per cent respectively, underscoring the drag posed by financials. Excluding OMCs, EBITDA and PAT growth is more moderate at 6 per cent and 5 per cent. Mid-cap firms are expected to outperform both large and small caps on earnings growth, although revenue growth is anticipated to be largely similar across company sizes.
The automotive segment is expected to see robust earnings growth on the back of festival-driven demand and strong export performance. Two-wheeler wholesales rose 10 per cent year-on-year (YoY) in Q2, supported by a 7 per cent increase in domestic volumes as channel stocking ahead of the festive season boosted dispatches. Exports maintained strong momentum, rising 26 per cent YoY. However, retail sales growth remained subdued at 1 per cent as consumers delayed purchases following the Goods and Services Tax (GST) cut announcement. Demand picked up sharply during the Navratri festival, coinciding with GST rate revisions.
Passenger vehicle (PV) wholesales increased 3 per cent YoY, with domestic wholesales slightly down 2 per cent due to elevated inventory levels and cautious dealer orders. Exports, by contrast, surged 24 per cent YoY. PV retail sales grew 3 per cent YoY, reflecting a similar demand pattern to two-wheelers. Heavy commercial vehicle (MHCV) truck wholesales are projected to rise 6-7 per cent YoY, while bus sales remain largely flat. Light commercial vehicle (LCV) volumes are expected to expand 13-15 per cent YoY.
Original equipment manufacturers (OEMs) are likely to benefit from operating leverage, supporting sequential margin improvements. Two-wheeler manufacturers may see better realisations due to a favourable product mix, whereas Maruti Suzuki could experience a decline owing to an adverse mix.
Tyre makers are expected to report improved margins, driven by softening raw material costs, with replacement volumes growing in high single digits and OEM volumes rising mid-single digits. Ancillary companies serving domestic two-wheeler OEMs are likely to outperform 4W and export-oriented peers, supported by operational efficiencies. Hero Motocorp and Lumax Industries are highlighted as top picks in the sector.
Metals, Chemicals, and Building Materials
Building materials demand remained subdued for late-stage products such as tiles and bathware, while organised wood panel makers saw recovery through market share gains. Paint demand was affected by prolonged monsoon activity, though a rebound is expected in the third quarter of FY26. Equirus Securities identified APL Apollo, Cera, Greenpanel, and Carysil as preferred investments in the sector.
In metals and chemicals, strong earnings growth is anticipated, aided by robust industrial activity and favourable product pricing. Specific company-level details were not disclosed, but the report notes that the sectors are expected to be among the primary drivers of overall corporate earnings in Q2.
Financials and BFSI Segment Under Pressure
While autos, metals, and OMCs lead growth, the BFSI sector, particularly banks, is expected to show mixed performance. Net interest margins (NIMs) may experience slight compression due to aggressive deposit rate cuts, with Axis Bank, DCB Bank, and CUBK likely to report higher-than-average margin pressure. Credit growth is projected to improve sequentially, around 4 per cent QoQ for most banks, with Bank of Baroda and RBI banks posting 4-6 per cent growth. Deposit growth may lag advances, while asset quality is expected to remain broadly healthy. Equirus Securities highlights Axis Bank and HDFC Bank as top picks in the financials space.
Non-banking financial companies (NBFCs) are expected to report divergent results. Gold financiers such as Muthoot Finance are forecast to post robust 40-42 per cent YoY growth, while vehicle financiers face moderate demand due to weak commercial vehicle utilisation and prolonged monsoon impact. Housing financiers are anticipated to see healthy revival in disbursements, supporting 9-17 per cent YoY loan growth. Small finance banks (SFBs) and microfinance institutions are showing improved collection efficiencies and revival in disbursements, contributing to positive loan momentum. Top NBFC picks include Ujjivan Small Finance Bank, Fedbank Financial Services, and L&T Finance.
Consumer Durables, FMCG And Retail
Consumer durables volumes fell initially due to seasonal factors, but post-festive recovery and GST cuts are expected to support mid-teen growth in wires and cables, though earnings from white goods and appliances remain weak. Consumer staples are forecast to grow around 7 per cent YoY in revenues, with flat EBITDA, while alcoholic beverage volumes show uneven recovery, with premiumisation supporting spirits and IMFL growth.
Retail sector growth is mixed, with GST rationalisation causing temporary demand slowdown. Arvind Fashions is expected to report 12 per cent topline growth, VMART around 5-6 per cent (adjusted), and Trent 17 per cent, driven by store expansion. TJL is forecast to see 32 per cent growth due to new store openings. EBIT margins are expected to be supported by operational cost control despite some adverse mix impacts.
IT companies may see moderate sequential revenue growth of 0-2 per cent in constant currency terms among top large caps, while mid-cap IT firms like Coforge, PSYS, R Systems, and eClerx may achieve 3.6-5.8 per cent US$ revenue growth QoQ. EBIT margins are expected to remain resilient, supported by cost optimisation and productivity gains, though demand commentary may remain cautious.
Healthcare earnings may be impacted by GST-led channel destocking and subdued US performance, with Lupin and Alkem Laboratories expected to outperform peers. Industrial sector execution is expected to remain steady, though new project orders slowed, suggesting a muted order inflow environment for FY26.
Equirus Securities anticipates mid-cap outperformance, healthy earnings growth in autos, metals, and OMCs, and a mixed picture across BFSI, construction, textiles, and consumer discretionary sectors. Investors are advised to focus on companies with strong balance sheets, operational efficiency, and exposure to growth-oriented sectors. |
