Q2 earnings: Can India Inc repeat Q1, or will Q3 erase the base-effect tailwind?

India Inc’s strong Q1 performance has set a high bar for the earnings season ahead, with investors looking to Q2 for signs that the momentum can be sustained. As the calendar moves into Q3, however, a favourable base effect that has supported year-on-year growth will begin to fade, putting the focus on whether earnings growth is being driven by revenue, demand and margins.

The key question is whether Corporate India can replicate Q1’s performance in Q2, and how much of the earnings growth will hold up when the base-effect support weakens in Q3.

Analysts broadly expect Q1’s strong earnings momentum to continue into Q2, albeit with some moderation as margins face cost pressures and some favourable tailwinds normalise. From Q3 onward, underlying demand, credit growth, capex and volumes are expected to play a larger role in determining earnings performance.


Antu Eapen Thomas, Senior Research Analyst at Geojit Investments, said Q1FY27 delivered a strong earnings surprise, with broad-based improvement across consumption, exporters, BFSI and commodities.

“Revenue growth also strengthened, indicating that earnings recovery is increasingly being driven by top-line expansion rather than solely margin gains,” Thomas said.

He added that low inventories, healthy volumes and selective price hikes had helped defer concerns around an earnings slowdown, although many of these tailwinds are now normalising.

The focus, therefore, shifts to whether revenue momentum can hold and margins remain stable as the benefits from favourable base effects and commodity tailwinds diminish in the second half of FY27.

“The next leg of earnings momentum will depend on stability in margins and whether the current revenue momentum can be sustained after the fading of favourable base effects and commodity tailwinds in H2FY27,” Thomas said.

He expects demand to receive support from the festive season, improved supply-chain stability, accommodative monetary conditions, liquidity and a gradual recovery in exports.

“While the outlook has turned more constructive, the risk-reward remains selective rather than broadly compelling,” Thomas said.

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Q2 may see moderation

Ravi Singh, Chief Research Officer at Mastertrust, expects some moderation in India Inc’s earnings growth in Q2.

“India Inc may see some moderation in Q2 earnings growth. Growth could slow to around 13–14%, from 18–19% in Q1, due to margin pressures, higher costs and normalisation of gains,” Singh said.

That moderation would come despite a relatively favourable comparison base. The September 2025 quarter had seen Nifty profit growth of around 2%, according to Tanvi Kanchan, Associate Director at Anand Rathi Share and Stock Brokers.

Kanchan said the headline Q2 earnings number could also be influenced by the performance of oil marketing companies (OMCs), making aggregate profit growth less representative of the broader corporate earnings picture.

“The oil marketing companies should add to Q2 profits, not subtract,” Kanchan said, adding that integrated margins could recover to Rs 9-14 a litre from Rs 1-3 in Q1.

“So the headline figure may look healthier than the median company’s results. Investors should look at earnings excluding energy, not at the aggregate,” she said.

Singh said that as the earnings season progresses into Q3, the contribution from favourable base effects will diminish and underlying business improvement will become more important.

Improving demand, stronger capex activity, margin recovery and healthy balance sheets could support earnings as the base effect fades, he added.

Q3 puts the focus on underlying growth

The December 2025 quarter saw Nifty profits grow 7%, according to Kanchan. While that remains a relatively modest comparison base, it is higher than the 2% growth recorded in the September quarter.

“The base effect does its most work in Q2, and it fades after that. The December 2025 quarter saw Nifty profits grow 7%, that is still a modest base, but it is much tougher than Q2’s 2%. From Q3 onwards, growth above high single digits will largely have to be earned,” Kanchan said.

She pointed to system credit growth of around 17% and private capex holding up, with capacity utilisation at about 75%, as indicators of underlying economic activity.

At the same time, input-cost pressures remain a factor. Kanchan said Brent crude was back above $106 a barrel amid US-Iran tensions, with sustained higher crude prices potentially adding margin pressure for companies unable to pass on higher costs.

For investors, earnings estimates could become an important indicator as the contribution from the base effect diminishes.

“Investors should also be realistic about estimates, consensus FY27 Nifty earnings were cut 9% in the year to May. At the start of FY25, the market expected about 15% growth and got 3.4%. In Q3, estimate revisions will tell you more than headline growth rates,” Kanchan said.

BFSI, capital goods and manufacturing in focus

The sectoral picture is also likely to become more differentiated as the earnings tailwind from low bases fades.

Singh said manufacturing and capital-goods companies appear better placed to sustain growth, supported by strong capex trends, healthy order books and internal cash flows.

Kanchan similarly highlighted lending financials and the manufacturing capex chain as areas where earnings growth could have greater support from underlying business activity.

“Lending financials come first, BFSI profits grew 13% in Q1, and with credit growing around 17%, the growth rests on loan volumes rather than an easy comparison,” Kanchan said.

She also pointed to capital goods and the manufacturing capex chain, particularly grid infrastructure and AI-ready data centres, where order books provide visibility beyond a single quarter.

IT could also warrant closer attention. “Profits grew 14% in Q1, and with the rupee around 95.8 to the dollar, currency is a tailwind for margins,” Kanchan said.

Metals delivered 30% profit growth in Q1 and recorded the strongest FY27 upgrades, she added, but the sector’s earnings remain dependent on commodity prices.

“That growth depends on commodity prices, not structural demand, so it should be treated as cyclical,” Kanchan said.

Commodity and input-cost sensitivity remains a risk

As the base-effect support fades, sectors that rely heavily on margin recovery or have limited pricing power could face greater pressure if input costs remain elevated.

“OMC earnings, crude-linked chemicals and consumption names with limited pricing power will find it hard to hold growth if oil stays above $100,” Kanchan said.

The distinction between headline earnings growth and underlying operating momentum, analysts said, could consequently become more important as the year progresses.

Disclosure: This article has been written by Kumar Gaurav, who is not a SEBI-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here