Corporate earnings slow to multi-quarter lows in Q1 as banking, consumer durables weigh

Aggregate revenue and profit expansions touched multi-quarter lows in the June quarter on a muted performance across sectors such as banking, consumer durables and capital goods.

In a sample of 3,197 companies analysed by ETIG, revenue climbed at a seven-quarter low of 6.4%, while net profit expansion of 7.7% was the weakest in at least nine quarters. The poor showing was, in part, offset by double-digit profit growth in cement, chemicals, construction, hospitality, and alcoholic beverages.

Investors are eyeing a monsoon-led demand revival in the second half, undergirded by government expenditure, to recover from the June-quarter performance.

Sectoral Opportunities

Uncertainties related to US tariffs and geopolitics would also dictate the course - and extent - of any backloaded recovery in FY26. According to Vinit Bolinjkar, research head, Ventura Securities, price inflation and higher operating expenditure impacted profitability.

"This aligns with the broader market expectations as companies continue to face global macroeconomic challenges, including inflation, geopolitical tensions, and cautious consumer sentiment," said Bolinjkar.

The studied sample's operating margin contracted 60 basis points year-on-year to 18.4% in the June quarter, largely influenced by the weakness in the net interest margin of banks.

One basis point is a hundredth of a percentage point.

Sliding Rates & Bank Margins

"In the banking sector, margins are likely to remain under pressure in the near term as the impact of rate cuts continues to trickle down," said Vinod Nair, research head, Geojit Investments.

However, Nair expects a potential easing in credit costs to help stabilise margins in the second half of the fiscal year.

Excluding banks and finance companies, the operating margin of the companies in the sample, at 15.6%, was flat year-on-year. In addition, net profit growth for the truncated sample improved to 10%, and revenue growth was a tad lower at 5.7% compared with the metrics for the full sample.

Sectorally, the trend was mixed. Chethan Shenoy, research head, Anand Rathi Wealth, pointed out that industries such as non-banking financial companies (NBFC), infrastructure, and retail reported double-digit, year-on-year sales growth.

On the other hand, metals and public sector banks showed a slump in sales while the IT sector's performance remained subdued amid circumspect global tech spending.

For the remainder of FY26, Shenoy believes that opportunities lie in the infrastructure and capital expenditure cycle, a potential consumption recovery in retail and FMCG, and sustained margin tailwinds from lower commodity and logistics costs.

"However, risks remain from global growth slowdown, commodity price volatility, interest rate trends, and policy changes that could affect sensitive sectors such as energy and PSUs," Shenoy added.