India Inc’s blockbuster Q1 earnings may not last as 3 key tailwinds fade in H2

India Inc’s strongest earnings quarter in years may already contain the seeds of a slowdown. The favourable base and consumption stimulus, a weaker rupee and rising commodity prices that propelled Q1 results are all set to lose force in the second half, just as forecasts demand another year of robust profit growth.

“Unless there is a fresh demand stimulus, expect sharp top line/PAT deceleration in H2FY27,” Nuvama analysts Prateek Parekh and Priyanka Shah said. The brokerage said the 19% profit growth forecast for its BSE 500 universe excluding oil-marketing companies remains a “tall task.”

The warning contrasts sharply with the headline numbers. Nuvama’s BSE 500 universe excluding OMCs delivered 22% year-on-year profit growth, a three-year high, as revenue rose 19%, the fastest pace in four years. Motilal Oswal’s universe excluding OMCs posted an 18% increase in sales and 22% growth in profit, exceeding its estimates of 15% for both.


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Kotak Institutional Equities said Nifty50 profit climbed 17.7%, compared with its estimate of 10.4%. Motilal Oswal, which called the results a “picture-perfect quarter of broad-based performance with an earnings upgrade,” recorded 18% Nifty profit growth, the strongest in 10 quarters.

Yet the limited movement in full year estimates suggests analysts are reluctant to extrapolate the performance. Motilal raised its FY27 Nifty earnings-per-share estimate by just 0.6% to ₹1,232 and its FY28 forecast by 0.3% to ₹1,425. Nuvama’s FY27 estimate for the BSE 500 was broadly unchanged after the results.

Base effect of GST cuts to fade in H2

The first tailwind at risk is the combination of a favourable base and the consumption boost from GST cuts and regulatory easing. Those measures helped accelerate sales across autos and consumer businesses, but the effect will begin to normalise in H2, according to Nuvama.

The divergence between demand and profitability is already visible. Bank of Baroda’s sample of 2,623 companies recorded 17.1% sales growth in Q1, up from 4.6% a year earlier, while profit growth improved to 12.5% from 10%.

Consumer-oriented companies increased sales by 21.3%, but their combined profit was almost unchanged. Automobile and ancillary profits declined 4.9%, while FMCG earnings fell 5.1%, even as their sales rose 26.4% and 18.2%, respectively.

Raw material and service costs for non-financial, non-oil companies jumped 21.7%, according to data from Bank of Baroda. Automakers faced higher prices for steel, rubber and copper, while consumer companies absorbed increases in commodities, packaging and freight.

That raises the risk that the next phase of the consumption recovery will require companies to choose between protecting volumes and defending margins. Price increases and cost reductions limited the damage in Q1, but they may become harder to execute as the base effect turns adverse.

Autos offer the clearest example. Domestic volumes rose sharply across major manufacturers, including gains of 35% for Maruti Suzuki, 32% for Eicher Motors’ two-wheelers and 25% for TVS Motor, according to Kotak. Still, most automakers reported sequential margin compression as raw material and foreign exchange costs offset operating leverage.

Rupee effect

The second fading tailwind is the rupee. Currency depreciation lifted the reported earnings of exporters and helped offset weak underlying demand in some globally exposed sectors.

Bank of Baroda’s export-oriented category posted 21.3% sales growth and a 43.1% increase in profit. Chemicals, textiles and diamond and jewellery companies were among the beneficiaries. Nuvama said the weaker currency cushioned Indian IT companies after their revenue disappointed in dollar terms.

That support should moderate if the rupee stabilises, Nuvama said. The risk is particularly relevant for IT services, where Kotak found weak headline revenue growth and signs that generative artificial intelligence is reducing software development volumes and intensifying pricing pressure in managed-services contracts. AI-related business grew at some companies but was not enough to offset the wider deflationary effect.

The commodity question

The third tailwind comes from commodity prices. Metals, energy and oil and gas companies generated a large part of the earnings surprise, helped by higher prices, supply disruptions and favourable comparisons.

Five companies—ONGC, Hindalco Industries, Reliance Industries, JSW Steel and Bharti Airtel—accounted for 60% of the incremental Nifty profit in Motilal Oswal’s analysis. Metals and mining profit surged 54% in Nuvama’s coverage, while Bank of Baroda recorded profit growth of 53.7% for its metals and mining category.

That concentration has implications for earnings quality. Kotak warned of the “somewhat ‘weak’ quality of incremental profits,” with commodity sectors driving a disproportionate share of the FY27 increase.

Commodity inflation also created clear losers. Bank of Baroda said crude oil averaged about $97 a barrel in Q1, compared with $67 a year earlier. Profit in its crude oil category plunged 83.3% as oil marketing companies absorbed higher costs before retail fuel prices were increased.

The commodity boost is likely to become less powerful as the comparison base catches up. Nuvama said revenue growth in the sector could moderate from H2 in the absence of another supply shock. Metals are already among the sectors where FY27 earnings estimates were cut after Q1.

Other constraints remain in place. Nuvama cited weak household income growth, subdued credit multipliers and the potential effect of El Niño on farm incomes. Banks delivered strong credit growth and lower credit costs, but margins remained under pressure as funding costs stayed elevated and secured lending gained share.

The downgrade pattern also shows where the risks are accumulating. Nuvama’s FY27 earnings estimates were cut 13% for consumer services, 12% for internet companies, 9% for autos, 5% for cement and 4% for FMCG. Private banks, non-bank lenders and paints were among the few areas to receive upgrades.

Bank of Baroda economist Aditi Gupta described India Inc as “strong and resilient to external shocks,” supported by both consumption and manufacturing. The Q1 numbers validate that assessment, but resilience alone may not be enough to sustain the current earnings trajectory.

Valuations leave limited room for disappointment. Kotak described them as “reasonable on top-down basis, less so on bottom-up basis,” pointing to expensive consumption and investment stocks even after a prolonged period of market consolidation.

For investors, the earnings debate is therefore shifting rapidly from the magnitude of the Q1 beat to the durability of growth. The first quarter demonstrated that companies could navigate volatile input costs and geopolitical disruption. H2 will test whether demand can take over as the temporary supports of a low base, currency depreciation and commodity inflation begin to fade.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)