“We perceive 1QFY26 as the ‘Crossover quarter,’ which should mark the crossing-over from a subdued low-single-digit earnings growth of FY25 towards a more sustainable double-digit earnings growth over the four subsequent quarters,” Motilal Oswal said in its latest research note.
The brokerage’s bottom-up analyst estimates project a sharp acceleration ahead, with MOFSL universe earnings expected to surge 10% YoY in Q1, followed by an impressive 12%/15%/14% growth trajectory in the subsequent three quarters. The Nifty is forecast to post 5% growth in Q1, then accelerate to 6%/13%/16% in the following quarters.
The quarter’s standout feature will be the remarkable breadth of earnings growth across sectors, a stark contrast to the narrow, uneven recovery of recent quarters. Multiple sectors are expected to deliver double-digit profit growth, with real estate leading the charge at 40%, followed by EMS at 46%, cement at 35%, and retail at 23%.
“The number of sectors likely to post negative growth is expected to be lower at 2 (Autos and Metals) in 1QFY26 vs. 6 sectors in FY25 – indicating improving dispersion of growth,” the brokerage noted. Significantly, for the full year FY26, Motilal Oswal currently doesn’t factor any sector to post negative profit growth.
The oil & gas sector is expected to be the primary driver, with a massive 42% year-on-year growth fueled by oil marketing companies. Telecom is set for a dramatic turnaround from losses to profit, while other key contributors include technology (+7%), lending NBFCs (+8%), PSU banks (+5%), and healthcare (+11%) – collectively accounting for 89% of the incremental earnings growth.
Financials Face Headwinds
However, the financial sector presents a more cautious picture. The MOFSL Financial Universe is expected to post a muted 3% year-on-year earnings growth, primarily due to weak performance by private banks, which are projected to report their second quarter of earnings decline (3% year-on-year) in March 2020.
PSU Banks are likely to clock moderate earnings growth of just 5%, their lowest in 20 quarters. The insurance universe earnings are expected to moderate to 4% YoY, while NBFC non-lending is set to record its lowest earnings growth in 10 quarters at 11%.
Technology Sector’s Continued Struggle
The technology sector faces another challenging quarter, likely to deliver modest earnings growth of 7% year-on-year, the lowest in five quarters and marking the eighth consecutive quarter of single-digit growth.
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Sales and EBITDA of the MOFSL Universe are projected to grow 4% and 10% year-on-year respectively, while the Nifty is expected to see sales and EBITDA improve 7% and 6% year-on-year.
Motilal Oswal maintains an overweight stance on BFSI, industrials, and healthcare, while remaining underweight on oil & gas, cement, and metals. The brokerage has upgraded automobiles from underweight to neutral, signalling cautious optimism about the sector’s prospects.