India Inc sees first earnings upgrade after a gap of 5 quarters

India Inc has logged its first aggregate earnings upgrade in five quarters, signalling a turn in the corporate profit cycle after a prolonged period of estimate cuts. The upgrade is being driven largely by mid- and large-cap companies, even as small caps continue to see downgrades.

Motilal Oswal’s universe of stocks has seen its FY26 profit after tax (PAT) estimate raised by 2% over the three months ending September 2025 (2QFY26) earnings season, the first upgrade since the end of the June 2024 (1QFY25) results season. This follows a string of cuts of 6%, 3%, 4% and 2% over the preceding four earnings periods, underscoring a clear inflection in the revisions cycle.

Mid-caps have led the recovery with earnings upgrades of 3.1% for FY26, while large caps have also seen healthy upward revisions of about 2%. In contrast, small caps remain under pressure, with aggregate FY26 PAT estimates cut by 5.5%, reflecting the continued stress in the tail of the market.

Sector leaders and laggards

Within the broader universe, the breadth of revisions has been more favorable in the larger sectors, where key profit pools have seen meaningful upgrades. Oil & gas (FY26 PAT up 13%), telecom (up 30%), PSU banks (up 5%), insurance (up 3%) and non‑lending NBFCs (up 2%) are among the biggest gainers on the earnings revision sheet.

On the flip side, utilities have seen the sharpest cuts with an 8% downgrade in FY26 PAT, followed by autos at 3% (largely due to Tata Motors; excluding it, auto PAT has been revised up 3%) and healthcare at 3%. Among smaller sectors, chemicals, media, staffing and cement have borne the brunt of downgrades, while small‑cap private banks, insurance, retail and EMS have seen double‑digit earnings cuts.

Outlook: Mid-teens growth despite soft GDP

The brokerage is pencilling in FY26/FY27 earnings growth of 12%/15% for the Nifty 50 and 15%/16% for its coverage universe, implying that the current upgrade phase could be sustained without sharp swings in either direction. It argues that even with nominal GDP growth expected to stay below 10%, mid‑teens corporate profit growth is plausible because PAT is influenced by factors such as leverage, pricing power, cost trends and competition, not just top‑down macro growth.Historical data show that nominal GDP growth explains only about 20% of Nifty 50 PAT growth and an even smaller share for the broader universe, with explanatory power improving to still‑modest levels even in stretch, non‑linear fits. With MOFSL universe PAT growing just 6% in FY25, the low base also increases the probability of stronger mid‑teens earnings expansion over FY26–27.

Profits’ modest share in GDP

India Inc’s profit pool remains relatively small against the size of the economy, adding to the cyclicality of earnings versus the smoother GDP trajectory. Nifty 500 PAT stood at 4.7% of GDP in FY24 and FY25, while total corporate profits (listed plus unlisted) were about 7.3% of GDP, compared with an average India Inc profit‑to‑GDP ratio of roughly 4–5% over the past two decades.

By contrast, US corporate profits have averaged around 11% of GDP between 2020 and 2024, yet even there nominal GDP growth shows limited ability to explain annual profit growth, reinforcing the case for looking beyond macro growth rates when assessing earnings. The report concludes that concerns around lower nominal GDP mechanically dragging down corporate earnings are overstated in the Indian context.

Valuations, positioning and preferred themes

Motilal Oswal remains constructive on equities, expecting Indian markets to claw back their underperformance of calendar 2025 on the back of healthier earnings, supportive domestic macros and an improved geopolitical backdrop. Large caps are described as “not demanding”, with the Nifty 50 trading at a one‑year forward price‑earnings multiple of 21.3 times versus a long‑term average of 20.8 times, while small caps sit at a significant premium.

The brokerage is overweight diversified financials, automobiles, capital goods, IT services and telecom, and underweight energy, metals, utilities and staples. Its preferred large‑cap names include Bharti Airtel, ICICI Bank, SBI, Infosys, Larsen & Toubro, M&M, Titan, Bharat Electronics, IndiGo, TVS Motor, Tech Mahindra and Indian Hotels, while mid‑cap picks span Swiggy, Dixon Technologies, Suzlon, Jindal Stainless, Coforge, Kaynes Technology, Radico Khaitan, V‑Mart and VIP Industries.