Q3FY26 Earnings Uneven, But Improving

With Indian equities faltering in recent quarters, the Union Budget 2026–27 is being viewed as a much-needed stabiliser and catalyst. A mixed Q3 FY26 earnings season, marked by robust gains in investment-led sectors and strains in consumer facing industries, has investors counting on the Budget’s big spending push and Tax tweaks to revive momentum. [EasyDNNnews:PaidContentStart]

The Indian equity market’s momentum has sputtered in the past few weeks. After hitting all-time highs in early January 2026, stocks reversed course amid global volatility and profit-booking. The benchmark Nifty 50 delivered only a 6.17 per cent gain in the October–December 2025 quarter and slid over 1.8 per cent on Union Budget day, logging its worst post-Budget fall since 2021. Foreign portfolio outflows, rising oil prices, and caution ahead of policy changes kept sentiment muted. It is in this cautious backdrop that Finance Minister Nirmala Sitharaman’s Union Budget 2026–27 has emerged as a potential game-changer, promising to stabilise the macroeconomy and energise key sectors with higher public investment and targeted incentives. On the macro front, underlying fundamentals offer a silver lining. Industrial output (IIP) surged to a 26-month high 7.8 per cent growth in December 2025, underscoring robust domestic demand and the payoff from government capex. Inflation, meanwhile, collapsed to under 1 per cent (quarterly average) by December-end as food prices stayed benign, giving the RBI room to maintain supportive policy. GDP growth is normalising around 7–8 per cent, near India’s decadal trend,  buoyed by resilient consumption and recovering private capex. Yet, equity markets have not mirrored these positives; valuations and global headwinds have kept indices range bound and volatile. This contrast raises the stakes for the Budget to act as a circuit-breaker that can bridge the gap between economic reality and market expectations. 

Union Budget 2026–27: Macro Stabiliser & Sector Catalyst

Unveiled on February 1, 2026, the Budget lays out a roadmap aimed at shoring up growth and investor confidence. A record capital expenditure outlay of `12.2 lakh crore for FY27 (an 11 per cent increase year-on-year and 22 per cent including state grants) signals the government’s intent to pump-prime the economy through infrastructure and industrial projects. From 7 new high-speed rail corridors and Logistics parks to a renewed Defence R&D push, the Budget’s emphasis on investment is expected to create multi-year demand tailwinds in steel, engineering, Construction, and related industries. The fiscal deficit is projected to narrow modestly (helped by buoyant direct taxes), indicating continued macro stability and a commitment to sustainable finances that should comfort both bond markets and Banks. Crucially, the Budget also announced targeted  sectoral measures: incentives for data centres and cloud services (including a tax holiday until 2047 to attract global tech giants), tweaks to capital market taxes, hiking the securities transaction tax (STT) on derivatives trades and overhauling share buyback taxation, and a renewed if cautious push on PSU divestment to raise capital. These proposals have near-term implications for market participants (the STT hike initially jolted trading volumes, and the buyback tax change could alter corporate capital return policies) but are also geared toward longer-term development of a more transparent, broad-based market. 

Against this backdrop, Corporate India’s Q3 FY26 earnings (October–December 2025) present a nuanced picture of an economy in transition. Overall profit growth picked up to high single digits, improving on the prior year’s pace, but the spoils were unevenly distributed. The quarter revealed a tale of two economies, booming investment-driven sectors versus struggling consumption-led segments, even as aggregate growth was bolstered by favourable base effects and GST reforms. The following were key trends from the Q3 results season:

• Banking & Finance: Large private banks like HDFC Bank and Federal Bank posted around 9 per cent profit growth on robust core income, while certain NBFCs saw margin pressure.
• Information Technology: Tech giants such as Infosys  and peers benefited from steady digital demand, keeping overall IT earnings flat-to-positive despite global headwinds.
• Consumer & Auto: FMCG majors and automakers delivered strong top-line gains, aided by GST rate rationalisation and festive season spillover, though margins were mixed.
• Export Sectors: Export-heavy industries (e.g. Textiles & Apparels) struggled with weak demand and U.S. tariff impacts, mirroring industrial output drags from global trade headwinds. 
   

Six broad factors influenced Q3 performance: GST tax benefits, low input costs, rural demand recovery, an uptick in capex, moderating inflation, and external trade challenges. Early results from bellwethers like Reliance Industries and Bharti Airtel came in ahead of expectations on revenue; however, there was a miss on bottomline. Hence, investor enthusiasm remained tempered by the market’s recent lacklustre run. Now, with the Budget’s growth-oriented measures in place, there is cautious optimism that these macro cues, alongside improving earnings, could reset the market’s trajectory in coming quarters. 

Below, we break down Q3 FY26 sector performance in detail, and examine how Budget 2026–27’s proposals intersect with each sector’s outlook: 

Sector Performance and Budget Impact 

Electrical Equipment (Sector Score: 77.77) 

The electrical equipment sector logged moderate growth overall, powered by Large-Cap momentum in renewables and power transmission, but partially offset by struggles among smaller players. Heavyweight firms like GE Vernova (Grid) T&D, Waaree Energies, and CG Power posted strong increases in both sales and profits, reflecting momentum in green energy projects and grid investments. The sector’s weighted profit grew 113.9 per cent year-on-year, significantly outpacing sales growth of 48.8 per cent, indicating notable margin expansion (with operating margins around 17.6 per cent). However, this success was not uniform. Breadth was patchy: about 86 per cent of companies grew sales and 89 per cent saw profit growth, meaning a few laggards dragged the average. Notably, Lakshmi Electricals saw profits plunge 892 per cent (swinging to a large loss), and Aplab Ltd. suffered a 29 per cent drop in sales, highlighting pockets of weakness. Thus, while the sector’s leaders delivered impressive numbers, several smaller firms faltered, tempering the overall score. The net result is a dichotomy—strong weighted averages driven by market leaders, set against weaker breadth and notable under performers in the tail. 

Budget 2026–27 Outlook: If Q3 underscored the divide between strong and weak players, the Budget may help narrow that gap by supercharging demand across the board. The government’s landmark infrastructure plans, including the setup of 7 high-speed rail corridors, are expected to drive multi-year demand for electrical equipment such as rail electrification systems, Transformers, and rolling stock components. Likewise, continued investments in renewable energy and power distribution (with various green schemes and a focus on tier-2 city infrastructure) should keep Order Books healthy for companies like CG Power and GE Vernova. The Budget also extended customs duty exemptions on advanced machinery (including certain electrical and nuclear power equipment) to lower project costs. These moves, coupled with the data centre incentives (which will require significant power and cooling infrastructure), paint a positive outlook. Industry leaders are well positioned to capitalise, and even smaller players could see improved prospects as broad-based project spending rises. The key will be execution; those firms that struggled in Q3 must address operational issues to fully benefit from the coming investment wave. Overall, the Budget’s capex infusion acts as a timely catalyst for the electrical equipment sector, reinforcing the growth trajectory seen among its top performers. 

Sector Score (0–100) is a quick, at-a-glance indicator that ranks each sector’s earnings strength versus other sectors in this results pack. It combines growth (median and market cap weighted YoY sales and profit growth), profitability (median operating margin), breadth (share of companies reporting positive growth), and near-term market action (average 1 week return after results). A higher score means the sector is showing stronger, broader and more consistent performance in the current quarter, relative to peers. 

Realty (Sector Score: 71.96) 

T he Real Estate sector turned in a mixed performance. Top-line growth was solid, but bottom-line results revealed stress. Market-cap weighted average sales for listed realty firms grew a healthy 35.9 per cent year-on-year, fuelled by strong execution at leading developers Prestige Estates and DLF, among others. T hese market leaders enjoyed robust demand, likely benefiting from urban housing upcycles and project completions. The weighted profit for the sector actually increased by 5 per cent, as a company like Prestige Estates saw its profit increasing by almost eight fold. While about 79 per cent of realty firms grew sales, only 72 per cent managed to grow profits. Several developers faced higher input and borrowing costs that squeezed margins. Big players held up—operating profit margins remained high at 22.2 per cent, reflecting strong pricing power and cost control by established firms—but smaller developers struggled. For example, Radhe Developers and Landmark Prop. reported steep profit declines or losses, which weighed on the sector average. This bifurcation—large players thriving, some smaller ones floundering—left the realty sector with a middling score. The fundamentals (good demand, high margins) were offset by uneven profit outcomes across the board. 

Budget 2026–27 Outlook: In a bid to spur housing and construction, the Budget delivered a significant boost that could reinvigorate the real estate sector. A highlight is the massive 66 per cent jump in allocation for the Pradhan Mantri Awas Yojana (PMAY), India’s affordable housing scheme, which should directly stimulate residential projects in the mid- and low income segments. This higher government spending on housing (urban and rural) will likely translate to more project launches and faster sales in the affordable category, benefiting developers active in that space. Moreover, the Budget proposed infrastructure development in Tier-2 and Tier-3 cities, which can open up new markets for real estate growth beyond the metros. On the financing side, while there were no direct changes to homebuyer mortgage incentives or REIT taxation, the overall f iscal discipline (maintaining a reasonable deficit) should help keep interest rates stable to slightly softer. This will ease a key headwind (cost of capital) that squeezed realty profits in Q3. 

Finance (Non-Banking Finance) (Sector Score: 70.80) 

The broad finance sector, encompassing non-bank lenders (NBFCs), housing finance companies, and other financial services, had moderate growth with decent breadth in Q3, but profitability was uneven. Weighted average sales (or revenue) grew a strong 59.1 per cent year-on-year, driven especially by large players like Jio Financial and Tata Investment Corp. This top-line growth reflects robust loan disbursements and fee income as credit demand improved. Profit growth for the sector was 88.1 per cent, outpacing sales and hinting at some operating leverage. However, not all participants thrived. About 80 per cent of companies increased revenue and 73 per cent increased profit, meaning nearly one in four saw profit declines. 

While the finance sector’s big names and overall metrics look solid (strong growth and high margins), the headline hides pockets of stress in smaller NBFCs/housing financiers struggling with NPA or cost-of-funds issues. The sector’s low-70s score reflects this mix of strength at the top and persistent challenges lower down the ladder. 

Budget 2026–27 Outlook: The Budget’s impact on the f inance sector is more macro and confidence-driven than specifically transactional, but there are notable angles. First, the government’s commitment to fiscal consolidation and a moderate borrowing programme should help keep interest rates relatively stable. For NBFCs and housing finance companies, a benign rate environment means lower funding costs and improved spreads. This is a relief after the high-rate phase that hurt some players’ margins. Second, the Budget has proposed to restructure and strengthen state-owned financial institutions like PFC and REC (which fund infrastructure). This could improve the flow of credit to infrastructure projects and potentially reduce crowding-out of private credit. NBFCs can f ind more room to lend to consumers and SMEs without competing as hard with government borrowing. Additionally, the Budget extended the Credit Guarantee Scheme for MSMEs, infusing more capital into it. This bodes well for lenders focused on small business credit (many NBFCs). On the regulatory front, a notable change is the removal of the MAT (Minimum Alternate Tax) for foreign branches and certain presumptive tax payers, which could encourage more offshore fund flows and activity in GIFT City, indirectly aiding financial services development. 

Auto Components (Sector Score: 66.96) 

The auto components sector posted steady growth in Q3 with outstanding breadth, even if margins and big-cap contributions were relatively subdued. An impressive 93 per cent of auto component firms increased their sales year-on-year, and 90 per cent grew profits, indicating that the automotive supply chain broadly benefited from the revival in vehicle production and demand. However, the magnitude of growth was moderate. Weighted sales growth came in at 18.9 per cent, which is below the median of all sectors, suggesting that while many companies grew, the growth rates were not high, especially for the larger players. Indeed, smaller component makers like Craftsman Automation and Omax Autos were among the faster growers, whereas some large caps saw slower climbs. Weighted profit growth was healthier at 52.5 per cent, outpacing sales and pointing to some margin improvement, but operating margins remained modest at 13.3 per cent (typical for auto ancillaries which operate on thin OEM pricing). A notable soft spot: industry leader Balkrishna Industries (a major tyre manufacturer) experienced a 15 per cent decline in profit, pulling down the average for big names. In sum, the sector’s mid-60s score reflects broad-based but low-intensity growth. Nearly everyone is participating in the uptrend, but the gains are not dramatic, and a few key large companies underperformed, tempering the overall performance. 

Budget 2026–27 Outlook: Auto component suppliers are likely to see continued momentum, courtesy of the Budget’s focus on bolstering manufacturing and the push for electric mobility. The government announced an increase in the Production-Linked Incentive (PLI) outlay for electronics and components manufacturing to `40,000 crore, a signal that ancillary manufacturing (including automotive electronics, EV components, Semiconductors, etc.) will get policy support. This could benefit component makers diversifying into EV parts or advanced automotive electronics. 

Automobiles  (Sector Score: 66.79) 

Only three companies from the automobiles sector, comprising major passenger and two-wheeler manufacturers, had announced their results. They posted robust sales but mixed profits, resulting in a restrained overall score despite 100 per cent of players showing growth. All three major listed automakers saw healthy revenue gains, reflecting strong consumer demand post-monsoon and festive season. Maruti Suzuki, the four-wheeler bellwether, led on volume recovery with a 28.7 per cent year-on-year jump in sales. However, Maruti’s profit rose only 4.1 per cent. In contrast, leading two-wheeler makers fared better on profitability: Bajaj Auto recorded a 27.8 per cent profit increase, and TVS Motor Company outperformed with a 55.4 per cent profit surge, aided by new model launches and export growth. 

Budget 2026–27 Outlook: The automobile industry emerged from the Budget with no negative surprises and a few potential positives, suggesting a stable to improving outlook. Crucially, the Budget did not introduce any new cess or higher GST on cars or bikes, which was a relief for the sector. 

Industrial Products   (Sector Score: 50.54) 

Industrial Products delivered broad-based, but not spectacular growth in the quarter ended December 2025 (Q3 FY26). Out of 57 companies, about 77 per cent reported year-on-year sales growth and 70 per cent posted year-on-year PAT growth, signalling that demand was fairly widespread across sub segments. In terms of intensity, the sector looked decent: weighted year-on-year sales growth (by market-cap) was 19.43 per cent and weighted year-on-year PAT growth was 27.23 per cent, suggesting profitability improved faster than revenues. Margins were steady rather than punchy. On an aggregate basis, the sector’s operating margin works out to roughly 12.6 per cent with net margin near 7.9 per cent. 

Where the story gets mixed is at the leadership level and cyclicals. Polycab India stood out with strong scale-led growth (sales +46 per cent year-on-year; PAT +36 per cent year-on year), while KEI Industries also remained solid (sales +19.5 per cent; PAT +42.5 per cent). On the flip side, some large names diluted the headline. Supreme Industries’ PAT fell about 18 per cent, and pockets tied to commodity-linked pipes/steel saw weaker profitability (for instance, Jindal Saw showed a sales decline and a steep PAT drop). 

Budget 2026–27 Outlook: The public capex rise to `12.2 lakh crore keeps the demand backdrop supportive for cables, pipes, tubes, and capital goods. Cost competitiveness could also improve at the margin via customs duty exemption on capital goods used for processing critical minerals, which supports domestic supply chains for manufacturing and industrial inputs. 

Banks (Sector Score: 43.30) 

Banks showed healthy breadth but low “big-cap torque” in Q3 FY26. Among 35 banks, about 86 per cent reported year-on-year income growth and about 89 per cent posted year-on-year PAT growth, a strong participation signal. However, the weighted year-on-year topline growth (by market-cap) was just 3.35 per cent and weighted year-on-year PAT growth was 10.38 per cent, implying that the largest banks grew steadily rather than sharply, keeping the sector’s aggregate pace muted. Our analysis of 35 banks shows that the biggest names were mostly in the low-to mid single digit zone on topline growth: HDFC Bank (+2.4 per cent sales; +12.2 per cent PAT), ICICI Bank (+2.8 per cent sales; PAT slightly negative), Axis (+4.8 per cent sales; +4.0 per cent PAT), and Kotak (+5.3 per cent sales; +4.8 per cent PAT). 

The sector score sinks further because a few meaningful laggards were not small. IndusInd Bank was a clear drag with negative sales and a sharp PAT drop, and some other lenders were either flat or only marginally positive on profitability. Offsetting that, select mid-sized/private lenders did better: IDFC First Bank and AU Small Finance Bank stood out with stronger profit momentum (IDFC First’s PAT growth was notably stronger). Overall, this quarter looked like stability with pockets of stress, rather than a broad earnings surge. Hence, the below-average score despite strong breadth. 

Budget 2026–27 Outlook: The Budget proposes a ‘High Level Committee on Banking for Viksit Bharat’ to comprehensively review the sector with a focus on stability, inclusion, and consumer protection; potentially a medium term positive for governance and policy clarity. What spooked the sector performance on Budget day was higher gross borrowing by the government that led to higher bond yield, which may impact banks’ treasury income. 

IT – Software (Sector Score: 39.73) 

IT – Software had strong revenue breadth, but weaker profit breadth, which explains the low score in Q3 FY26. Out of 28 companies, about 89 per cent posted YoY sales growth, but only about 64 per cent delivered YoY PAT growth—a classic sign that while demand held up, profitability was uneven (pricing, costs, especially the employee cost and higher provision due to new labour codes). On a market-cap weighted basis, growth was moderate: weighted YoY sales growth was 8.95 per cent and weighted YoY PAT growth was 12.40 per cent. Sector-level margins remain structurally healthy: aggregate operating margin works out to about 22.8 per cent and net margin about 15.8 per cent, but that did not translate into uniform profit expansion across the pack. 

Leadership was steady rather than explosive: TCS (+4.9 per cent sales; +6.7 per cent PAT) and Infosys (+8.9 per cent sales; +10.8 per cent PAT on yearly basis) were stable, while HCL Tech showed better topline but softer profit growth. The divergence widened in the next rung: Coforge and Persistent Systems stood out with strong double-digit growth in both sales and profits, whereas Wipro’s PAT declined and a few smaller names recorded sharp profit drops (pulling down the profit breadth). In short: revenues were broadly positive, but earnings quality was mixed, and the sector’s score reflects that dispersion. 

Budget 2026–27 Outlook: The Union Budget carries several implications for the IT sector, mostly favourable in the medium term. One headline measure is the incentive for data centres and cloud services – a tax holiday until 2047 for companies setting up massive data centre operations in India. This is a strategic push that will not immediately alter Q4 earnings, but over time it can attract hyperscale cloud providers (think Google, Amazon, Microsoft) to expand in India. That means more contracts for Indian IT in building, maintaining, and securing these data centres, and cheaper, more accessible cloud infrastructure for domestic tech firms. IT giants often return cash via hefty buybacks (e.g., TCS’s periodic buybacks). While the new rule could make buybacks slightly less attractive compared to earlier (when companies paid 20 per cent tax but shareholders had none), it might encourage companies to consider higher dividends or other investments. Investors might not mind as long as the cash return continues in some form, and it does not affect core operations. Also, specific allocations like for Semiconductor Mission 2.0 (`40,000 crore for developing chip ecosystem) and digital public infrastructure will require IT services support, potentially translating into government or private contracts for tech firms. 

Cement & Cement Products  (Sector Score: 35.45) 

Cement looked better on topline than on profitability consistency in Q3 FY26. In a set of 15 companies, 80 per cent reported YoY sales growth, but only 60 per cent posted YoY PAT growth—a meaningful gap that dragged the overall earnings score of the sector. The intensity numbers were not weak: weighted YoY sales growth (by market-cap) was 17.72 per cent and weighted YoY PAT growth was 14.78 per cent, pointing to a reasonable demand environment but with margin pressure or volatility across players. At a sector aggregate level, operating margin works out to about 15.0 per cent and net margin around 5.0 per cent, which is typical for cement when costs or pricing are not perfectly aligned. 

UltraTech Cement delivered a strong quarter (sales +22.8 per cent YoY; PAT +31.9 per cent YoY), and Dalmia Bharat reported solid profitability growth. But Ambuja Cements saw a steep profit decline (due to one-off item in last year same quarter’s numbers) despite revenue growth, and ACC’s PAT also fell materially for the same reason, creating a visible drag at the top end. Interestingly, some smaller names recorded sharp profit rebounds (for example, Orient Cement and Nuvoco Vistas showed strong YoY PAT growth), but they do not fully offset the impact of the largest constituents. The sector’s low score therefore reads as: demand improving, but profit outcomes not uniform due to one-off items in last year same quarter results, especially among key heavyweights. 

Budget 2026–27 Outlook: Cement demand typically tracks infrastructure and housing. The Budget’s `12.2 lakh crore public capex and large transport/infra thrust keep the medium-term demand setup supportive. On housing, higher allocation towards PMAY-R also supports rural construction demand. 

Conclusion
The Q3 FY26 earnings season underscored the resilience of India’s industrial and investment-led sectors alongside continued challenges in consumption and export-oriented pockets. Corporate India delivered broadly positive results with pockets of spectacular growth as well as areas of concern. Markets, however, remained muted, reflecting uncertainty. The Union Budget 2026–27 arrives as a timely intervention. With its record development spending, targeted tax reforms, and industry-specific incentives, it aims to restore confidence and act as a pivot for the economy and markets. 

If execution follows intent, the Budget’s effects—from a capex cascade lifting infrastructure, banking and capital goods, to tax tweaks reshaping capital allocation and trading activity, to incentives powering tech and manufacturing—will start materialising in the coming quarters. This could reinforce corporate earnings momentum and catalyse sector rotations in the stock market. Sectors that outperformed in Q3 (capital goods, metals, banks) are poised to gain further from policy tailwinds, while laggards (consumer, textiles, telecom) have been offered a pathway to recovery through demand stimulus and reform. 

In the near term, investor sentiment will watch macro data and global cues, but the Budget’s credibility as a macro stabiliser (maintaining fiscal discipline while prioritising growth) provides a safety net. Over the mid-term, its role as a sector catalyst—whether via higher credit off-take for banks, order f lows for construction, modernisation in rail/defence, or a boost to digital and consumption themes—could well kickstart a virtuous cycle. The weak equity performance of recent quarters has set a low bar. With Q3 earnings confirming that fundamentals are gradually strengthening and the Union Budget adding firepower to that trend, the stage is set for a potential re-rating of India’s growth story. Investors will be watching corporate scorecards in upcoming quarters keenly for evidence that this anticipated Budget bounce is translating into reality on the ground—a convergence of policy, macro, and earnings that could revive the bulls on Dalal Street. 

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