Nifty 50 earnings may surge in Q2, but the road ahead is rocky

Lower crude prices in July and August benefited corporations, particularly oil marketing companies, whose losses are expected to narrow from the June quarter, Elara Securities said in a recent report. Brent crude averaged below $90 a barrel during the two months before surging to $109 in September. “The full cost impact may reach P&Ls (income statement) only in Q3,” the brokerage said.

A tougher test

Brokerages broadly expect metals and mining, banks, consumer durables and export-oriented auto companies to lead the Q2FY27 earnings season, supported by rising global commodity prices, resilient domestic discretionary demand and a recovery in two-wheeler exports to Latin America, Africa and Asia. However, a low base is also likely to amplify the growth figures, as profit growth was sluggish in last year’s September quarter, noted Nuvama Institutional Equities.

“The benefit of the base effect should not be mistaken for a broad-based acceleration in underlying profitability,” said Feroze Azeez, joint CEO at Anand Rathi Wealth.

Analysts warned that rising raw material costs could squeeze profitability in fast-moving consumer goods, passenger vehicles, cement, and chemicals, as companies struggle to fully pass on these costs without hurting demand or losing market share to competitors.

“Q2 is likely to be a more demanding earnings test than Q1, as the initial recovery in revenue growth increasingly encounters higher input costs and tougher operating conditions,” an Axis Direct report noted.

Caution ahead

Markets will track management commentary on whether companies can undertake calibrated price hikes to protect margins or absorb higher costs to sustain volumes, said Axis Direct. A failure to pass on persistent cost inflation could trigger earnings downgrades, particularly for richly valued companies, the brokerage said.

However, Aziz of Anand Rathi Wealth noted that urban demand is still relatively resilient, driven by premiumisation, new product launches, easy credit and value-oriented offerings. This could sustain festive demand for automobiles, electronics and jewellery, allowing companies in these segments to pass on higher costs to consumers, he said. But rural demand remains a key concern for him, with rainfall uncertainty and depleted reservoir levels in parts of southern India threatening farm activity and rural consumption recovery.

With volumes holding up, the extent to which companies can implement and sustain price hikes in Q3 will determine how much of FY27 earnings estimates can be preserved, Elara Securities noted.

Most brokerages still expect net profit of Nifty 50 companies to grow 14-15% year-on-year in FY27. Elara Securities is among the few that have revised its growth expectations down to 11%, citing a challenging second half ahead.

Abhinaba Saha

Abhinaba writes deep-dive analytical stories on financial markets, corporate India and the economy. After finishing his post-graduation in finance from King’s College London, he moved into journalism three years ago with a goal to “simplify finance for all”. From tracking macroeconomic shifts and dissecting company fundamentals to decoding market sentiment, he connects the dots through data-driven storytelling, helping readers see the bigger picture.Abhinaba writes across sectors and asset classes, analysing IPOs, decoding moves in precious metals and crude oil, and unpacking trends across public and private markets. Collaborating across beats, he aims to be Mint’s “jack of all trades”. More recently, he has also experimented with new storytelling formats, including crisp video explainers for Mint’s YouTube channel.Across formats and topics, his goal remains the same: telling nuanced, insight-rich stories for his readers. When not writing, Abhinaba unwinds by cycling through the streets of Bandra in Mumbai, in search of fresh air and clearer thoughts. On quieter days, he turns to yoga, his preferred antidote to volatile markets, proving that while markets rarely find balance, at least the body occasionally can.