Q1FY26 Earnings Preview: Standing at the Cusp of Revival

Q1FY26 Earnings Preview: Standing at the Cusp of Revival 

As India Inc. enters the Q1FY26 earnings season, macro tailwinds, easing input costs, and rural resilience fuel cautious optimism. Yet, uneven consumption and global uncertainty keep sentiment grounded. In this cover story, Abhishek Wani writes about sector-wise trends, from FMCG to finance, highlighting where execution will separate leaders from laggards 

As the Q1FY26 earnings season kicks off, Indian investors find themselves balancing cautious optimism with measured expectations. After a subdued Q1FY25, when Nifty 50 companies delivered just 4 per cent YoY profit growth, the stage is set for a potential rebound, backed by improving macro and policy tailwinds. 

Easing input costs, particularly in palm oil, crude derivatives, and coffee, have begun to alleviate pressure on corporate margins. A favourable monsoon, tracking above long-period averages, is already lifting rural sentiment, critical for mass consumption. Meanwhile, the RBI’s surprise 50 bps repo rate cut and phased 100 bps CRR reduction have enhanced system liquidity, signalling policy support for domestic growth. 

Inflation remains under control, with headline CPI easing to a six-year low of 3.2 per cent in April 2025. Fiscal spending on infrastructure, transportation, and defence remains robust, benefitting capital goods and industrial sectors. Yet challenges persist: urban discretionary consumption is still soft due to muted wage growth, high rentals, and cautious metro spending. Summer-focused categories, from beverages to RTDs and personal care, were hit by unseasonal rains, weighing on names like Varun Beverages, Emami, and Colgate. 

External risks too, remain on the radar. Geopolitical tensions, both regionally and in the Middle East, alongside sluggish global demand, continue to impact export-oriented sectors such as IT services, textiles, and agrochemicals. 

With the Nifty 50 scaling to a recent high of 25,669 on June 30 (up 16 per cent from April lows), investors are now seeking earnings confirmation to justify valuations. The market is no longer trading on hope alone, profit delivery is paramount. 

Why Expectations Are Higher This Quarter 

1. Low Base Effect : Q1FY25 marked the first single-digit profit growth for the Nifty in four years, offering an easy comparison base. Sectors like metals, oil & gas, capital goods, auto, and FMCG that saw tepid volumes last year are likely to report improved YoY numbers simply due to statistical advantage. 

2. Supportive Monetary Policy : The RBI’s 100 bps repo rate cut cycle and phased CRR reduction will release ₹2.5 lakh crore into the system by November. While the full impact will play out over time, lower interest costs will already start reflecting in Q1FY26 margins, especially for leveraged companies and NBFCs. 

3. Record GST Collections : India’s gross GST mop-up of ₹22.08 lakh crore in FY25, a 9.4 per cent YoY increase, reflects strong formal sector activity. These buoyant collections suggest healthy consumption and trade volumes, supporting topline growth for manufacturing, logistics, and consumption-led firms. 

4. Easing Inflation Boosts Margins : With average FY25 inflation at 4.8 per cent and April 2025 at 3.2 per cent, companies in FMCG, paints, and food processing are seeing margin relief. Falling prices of key inputs, like palm oil, PFAD, coffee, and packaging materials, should boost profitability for players like Britannia, Nestlé, Berger Paints, and CCL Products. 

Outlook
According to ICRA, India Inc’s operating profit margin touched 18.5 per cent in Q4FY25, the highest in two years, and could hold steady in Q1FY26, supported by demand recovery and lower input costs. The interest coverage ratio, which rose to 5.0 times in Q4FY25 (excluding low-debt sectors like IT and FMCG), is projected to improve further to 5.1–5.2 times this quarter, helped by falling interest rates and stable balance sheets. However, earnings upgrades are likely to be selective rather than broad-based. Companies with exposure to rural demand (like Marico and Dabur), strong operating leverage (like L&T and Cummins), or low-cost funding access (like HDFC Bank and ICICI Bank) may outperform. Meanwhile, urban-focused discretionary names and export-heavy players may lag. 

1. FMCG & Consumer Staples
The FMCG sector enters Q1FY26 on a cautiously optimistic note, buoyed by a rural resurgence but weighed down by weak urban demand and an unusually rainy summer. Consumer staples are likely to post 6 per cent YoY revenue growth and 4 per cent volume growth in Q1, steady but uninspiring. EBITDA is expected to remain flat YoY, reflecting a mix of easing raw material costs and elevated advertising & distribution expenses. 

Rural demand continues to outperform urban markets, thanks to strong rabi procurement, early monsoon momentum, and welfare schemes. This is helping sustain volumes for companies with high hinterland exposure like Marico and Britannia. Conversely, urban slowdown, pressured by sluggish wage growth, rising rentals, and kirana destocking, remains a drag on metro-centric names like Colgate and Asian Paints. 

Raw material trends offer a mixed bag: palm oil and coffee prices are sharply down (13 per cent and 30 per cent QoQ respectively), aiding margin outlooks for Britannia, Nestlé, and Bikaji. However, continued copra inflation (+50 per cent YoY) is expected to weigh on Marico’s margins despite price hikes. 

Summer category players Varun Beverages, Emami, Dabur, Tata Consumer RTD, faced serious setbacks from unseasonal rains. Many had overstocked early, leading to 20 per cent production cuts and sluggish out-of-home consumption. Varun Beverages is likely to post a 4 per cent YoY volume decline; Emami may see domestic volumes down 5 per cent. 

Investor Takeaway: Focus on companies with diversified portfolios, rural salience, and raw material tailwinds like Marico, Britannia, and Nestlé. Stay cautious on summersensitive names and urban-dependent players until demand stabilizes in H2FY26. 

2. Consumer Discretionary
The consumer discretionary sector is showing signs of gradual volume recovery, but margin pressure remains a near-term concern. For Q1FY26, paint companies such as Berger Paints, Pidilite, and Indigo Paints are expected to clock 5–7 per cent YoY volume growth, aided by a low base and steady institutional demand. However, pricing remains largely unchanged due to competitive pressures, especially from new entrants like JSW Paints. Asian Paints is likely to underperform due to high urban exposure and slower recovery in metros. 

Air-conditioner sales, a key summer-driven category, were hit hard by unseasonal rains and an early monsoon. Channel checks suggest a 10 per cent YoY industry de-growth between January and June, impacting summer-linked consumer durables and discretionary spends. 

While raw material relief (e.g., softening crude-linked inputs) has begun, its full impact on gross margins will only be visible from Q2FY26 onward. For now, elevated input costs and higher A&P spends are likely to cap profitability. 

Investor Takeaway: Stick to discretionary names with rural exposure and pricing resilience like Berger and Pidilite. Avoid overpaying for overvalued names; Nifty Consumer Durables still trades at a P/E of 70. Instead, consider housing finance as a proxy to play the discretionary recovery at more reasonable valuations. 

3. Auto Sector
Q1FY26 is likely to be a mixed quarter for the auto sector, with two-wheelers (2Ws) leading the charge amid muted growth in passenger vehicles (PVs) and stable performance in commercial vehicles (CVs). The 2W segment stands out, supported by an improving rural economy, tax benefits for the middle class, and rising affordability. Rural sentiment has been buoyed by MSP hikes, a favourable monsoon, and easing inflation, all of which support a 6–8 per cent YoY volume growth for companies like Hero MotoCorp and TVS Motor. Passenger vehicle sales, however, are tapering off due to a high base, urban consumption slowdown, and tighter financing. Maruti Suzuki and Tata Motors' PV business may witness flat to marginally negative growth as channel inventory rises and discounting intensifies. 

CVs may post modest growth on the back of continued infrastructure push and replacement demand. Watch for cues from Ashok Leyland and Eicher Motors, particularly in the M&HCV space. 

Investor Takeaway: Stay constructive on rural-driven two-wheeler stocks where recovery momentum is visible. Be selective on PVs due to demand fatigue and margin compression. CV names may offer tactical opportunities, but execution remains key. Policy-led affordability boosts and rural demand are shaping up as key long-term drivers for the 2W segment. 

4. Banking & Financials
The Q1FY26 earnings season is expected to be a tepid one for the banking and financial sector, with an expectation of a 2 per cent YoY and 4 per cent QoQ decline in aggregate bank profit after tax (PAT). The sector faces a combination of cyclical headwinds and transitional pressures that may weigh on profitability in the short term. 

Credit growth has decelerated sharply, with system-wide loan growth slowing to 9.6 per cent YoY (from 11 per cent in Q4FY25) and just 0.4 per cent sequential growth till mid-June, well below the historical Q1 average of 1.5–2 per cent. Except MSMEs (which saw mid-teen growth), most lending segments including large corporates, NBFCs, housing, and unsecured retail loans posted weak trends. This sluggishness stems from delayed capex uptick, elevated interest rates, and cautious consumer sentiment. 

Banks’ Net Interest Margins (NIMs) are forecast to shrink by 8–25 bps QoQ, driven by a fall in lending yields that outweighed the modest decline in deposit costs. While deposit rates have cooled, especially for wholesale and savings accounts, banks have been slow to reprice loans, thereby compressing spreads. The system liquidity surplus of ₹2 trillion (vs a deficit in Q4) also diluted margins as idle funds earned lower returns. Q1 is traditionally weak for fee income and this year is no different, with transaction, forex, and capital market-linked revenues expected to remain soft. Simultaneously, banks continue to incur high operating costs due to digital investments and branch expansions, creating negative jaws and flattening core pre-provision operating profit (PPOP) growth. 

Seasonal increases in slippages, especially in corporate, real estate, and unsecured retail portfolios, combined with aging provisions are expected to push up credit costs modestly this quarter, adding pressure to bottom lines. 

Investor Takeaway: While Q1FY26 may mark the low point for margins and profitability, investors should look beyond near-term volatility. As RBI’s 150 bps repo rate cuts and ₹2.5 lakh crore liquidity infusion percolate through the system, margins should stabilise by Q3FY26 and improve into Q4. 

Retail and MSME credit should revive faster, supporting loan growth from H2. Focus on private banks with robust CASA franchises, well-diversified loan books, and strong digital ecosystems; names like HDFC Bank and ICICI Bank remain steady compounders. Among NBFCs, Bajaj Finance is best placed with retail momentum and prudent underwriting. 

PSU Banks have seen structural improvements, stronger RoEs, low GNPA/NNPA, and improving asset quality, but remain sensitive to macro risks. With the Nifty PSU Bank Index trading at just 7x P/E and offering a 3.2 per cent dividend yield, selective exposure could reward long-term investors betting on re-rating potential. 

5. IT Services
Q1FY26 is expected to be a soft quarter for Indian IT services firms, with topline growth likely to remain modest and revenue pressures lingering across key verticals. Discretionary tech spending continues to be subdued globally, especially in BFSI and retail, as clients delay decision-making amid geopolitical uncertainty and tariff-related caution. Analysts expect constant currency revenue growth to hover between 0.5–1.5 per cent QoQ, reflecting sluggish demand and weak deal ramp-ups. 

Despite this muted revenue trajectory, EBITDA margins may hold steady or even expand slightly (30–70 bps QoQ), supported by higher offshoring, improved utilisation, pyramid optimisation, and moderating attrition. Wage hikes and hiring softness have also helped limit cost inflation. While Large-Caps like TCS and Infosys may benefit from better execution and annuity revenues, Mid-Cap IT firms face greater volatility due to project dependence and margin sensitivity. 

Investor Takeaway: Investors should adopt a defensive stance in the IT pack. Use any correction to gradually accumulate Tier-1 names like HCL Tech (strong ER&D pipeline) and LTIMindtree, which offer structural tailwinds. Avoid aggressive exposure to mid-cap IT till visibility on global demand and client spending improves. Keep a close watch on Q1 commentary regarding FY26 deal pipelines, margin sustainability, and BFSI recovery timelines. 

6. Industrials & Capital Goods
Capital goods firms are likely to post strong double-digit revenue growth in Q1FY26, riding on sustained government-led infra spending and healthy order book execution. 

Companies like L&T, Siemens, and KEC are capitalising on pre-election infra loading and consistent state capex. However, margin pressure may persist due to elevated steel prices and an unfavourable project mix. Execution-led revenue remains the key driver, and commentary on working capital cycles and order inflow visibility will be crucial. Cummins, Thermax, and BHEL (turnaround watch) are key beneficiaries of the multiyear infra cycle. 

Investor takeaway: Stick with names having diversified order books and better execution track records. Watch for margin resilience and working capital discipline. 

7. Cement & Building Materials Cement demand in Q1FY26 is supported by infra and housing activity, with volume growth of 4–7 per cent expected. However, realisations remain soft due to intense competition in the South and seasonal discounts in the East. Fuel cost correction (petcoke, coal) should drive marginal sequential margin improvement. Key names like Ultratech Cement and Dalmia Bharat are best placed, while Shree Cement and Ramco need monitoring for pricing discipline. Domestic tile demand is also expected to rebound in FY26, post a subdued FY25. 

Investor takeaway: Hold through monsoon lull; stronger pricing power and demand visibility in Q2FY26 could present re-rating opportunities. 

8. Oil & Gas
Q1FY26 is expected to be a mixed bag. Reliance Industries could see stabilisation from its petchem segment, though CLSA suggests the real turnaround begins from Q2. GRMs may stay robust due to strong diesel and jet fuel demand. Oil marketing companies (IOCL, BPCL, HPCL) are likely to report steady margins with modest inventory gains. However, gas utilities like IGL and MGL may see muted volume growth due to seasonal softness. 

Investor takeaway: Stay overweight on downstream refiners with strong retail marketing arms. Accumulate RIL on weakness; remain cautious on upstream and city gas players. 

9. Metals
Metal sector performance is likely to be subdued in Q1FY26. Demand from China remains soft, and LME prices continue to trend downward, hurting realisations. Domestic players like Tata Steel, JSW Steel, and Hindalco may report flattish to weak earnings, with spreads under pressure and exports muted. Non-ferrous names with cost advantages are relatively better placed. 

Investor takeaway: Avoid fresh exposure. Monitor for pricing traction in Q2 and sustained demand from domestic infra. Stock-specific plays remain safer than sector-wide bets. 

10. Defence
India’s defence sector continues to benefit from robust government allocations, Make-in-India initiatives, and rising export orders. In Q1FY26, defence PSU players like BEL, HAL, and BEML are likely to post double-digit YoY revenue growth driven by healthy execution of existing orders and accelerated indigenisation in critical systems and platforms. 

Order inflows remain strong, particularly in radar systems, avionics, and tactical communication. Private players like Data Patterns, MTAR, and Paras Defence may also see healthy topline expansion, although margins may vary depending on the product mix and delivery timelines. 

With over ₹5 lakh crore allocated in the interim budget to defence (FY26), visibility remains high. Investor focus will be on guidance for execution timelines, export pipeline growth, and working capital trends. 

Investor takeaway: Stay invested in execution-focused defence PSUs and quality private players with unique IP and product-level exposure. Q1 earnings could act as a springboard for re-rating if margin discipline holds and export wins materialise. 

11. Aviation
Aviation players like IndiGo and SpiceJet are likely to see YoY revenue growth in Q1FY26 backed by robust passenger traffic during April–June. However, yields may be under pressure due to rising capacity addition and aggressive pricing. On the cost side, crude-linked ATF prices have softened considerably, aiding margins and reversing the pain of previous quarters. 

IndiGo, with a strong balance sheet and load factor leadership, remains best positioned. Market share gains, increased international flying, and efficiency in cost-per-available seat-km (CASK) will support its profitability. SpiceJet may see pressure on cash flows and operational metrics, especially amid restructuring and funding concerns. 

Investor takeaway: While short-term yield pressures persist, lower ATF costs and record load factors offer a tailwind. Accumulate leaders like IndiGo on dips but stay wary of high-debt airlines until clarity emerges on cost controls and profitability sustainability. 

12. Hotels The hospitality sector is set for another strong quarter in Q1FY26, aided by steady business travel, robust MICE (meetings, incentives, conferences, exhibitions) activity, and leisure tourism. Hotel chains like Indian Hotels, Lemon Tree, and Chalet Hotels are likely to report high occupancy levels (70–75 per cent) and sustained Average Room Rate (ARR) expansion. 

Q1 seasonally benefits from both domestic corporate bookings and inbound tourism. Post-COVID behavioural shifts in travel,higher focus on domestic getaways and premium hospitality,remain intact. Operating leverage and improved RevPAR (revenue per available room) will support EBITDA margin expansion YoY, even as new room supply is gradually added. 

Investor takeaway: Indian hospitality remains a structural growth story with rising disposable incomes and growing travel aspirations. Hold on to market leaders like Taj (IHCL) for premium exposure, while Lemon Tree and Chalet offer a mid-market and business-travel play. Monitor commentary on FY26 pipeline and ARR trajectory. 

In Conclusion
As the Q1FY26 earnings season unfolds, India Inc. finds itself balancing optimism with caution. Large-cap sectors,particularly financial services, defence, engineering, and power,are expected to underpin earnings, supported by operating leverage, government-led capex, and a stable policy backdrop. PSU and private banks may face near-term margin pressures but should remain resilient, helped by improving asset quality and digital penetration. Defence and rail-linked firms continue to convert their robust order books into revenues, reflecting the structural thrust of Make-in-India and infrastructure expansion. 

Consumption: A Gradual Revival
The consumption recovery remains uneven. While rural demand shows encouraging signs,driven by MSP hikes, moderating inflation, and welfare-led liquidity,urban discretionary segments still lag, weighed down by tepid wage growth and patchy confidence. The upcoming festive season and middle-class tax relief measures could catalyse an urban recovery in H2FY26. Value-led categories and staples should remain stable, while summer-centric items like beverages and talc may see prolonged weakness due to erratic weather. For investors, this means staying nimble, rotating between defensives and emerging discretionary leaders. 

Cautious Capex and Execution-Driven Market
Capex optimism is largely confined to government and PLI-linked sectors like electronics, semiconductors, and EVs. Private sector investment, however, remains conservative amid geopolitical and tariff-related uncertainty. While bottom-up strength is visible in select areas, broad-based acceleration remains elusive. With valuations elevated, Q1FY26 is less about surprise beats and more about execution credibility. This is a quarter that will separate sustainable compounders from short-term performers. 

Key Themes to Watch in Q1FY26 n Rural demand vs. urban fatigue n Impact of early monsoon on seasonal categories n Input cost trends: palm oil, crude, coffee, coal n Commentary on H2FY26 visibility (esp. IT & banking) n Capex pipeline strength and infra order execution 

Call to Action
As expectations run high and valuations stretch thin, Q1FY26 earnings will act as a litmus test for India Inc.'s profit resilience. This is a season to move beyond narratives and lean into numbers. Stock selection will matter more than ever. 

n Focus on fundamentals: Seek companies showing margin discipline, earnings delivery, and strong execution. n Stay grounded: Don’t get swept away by short-term noise or momentum. n Let earnings, not emotion, drive conviction. 

In a market priced for perfection, execution is everything.