Are India's Q3 Results Impacted by One-Time Charges?
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Synopsis
India's corporate sector is experiencing a subdued earnings season due to one-time charges linked to the new labour code. Analysts predict better results ahead despite current pressures. Will IT firms recover as demand for AI grows?
Key Takeaways
- Muted earnings due to one-time charges.
- IT firms adapting to AI demand.
- Temporary challenges in banking sector.
- Positive outlook for non-banking companies.
- Forecasted Nifty growth of 16% for FY27.
Mumbai, Jan 20 (NationPress) Initial reports from India's corporate sector for the December quarter reveal a subdued earnings season due to one-time expenses associated with the new labour code and other transitional costs affecting profitability, according to industry analysts.
So far, around 10 firms from the Nifty 50 have disclosed their results, mainly comprising IT companies and a few banks. Analysts noted that there were no pleasant surprises, with most firms exhibiting mixed outcomes or not meeting expectations.
A significant factor hindering corporate profits was the transition to the new labour code, which was implemented in November and brought about changes in wages, workplace safety, and social security.
Companies like TCS, Infosys, and HCL collectively faced over Rs 4,373 crore in one-time costs related to the adoption of these new regulations, leading to a notable decline in quarterly profits.
Despite the immediate challenges, IT firms are witnessing improved demand conditions as artificial intelligence transitions from experimentation to practical implementation, positively impacting deal pipelines and hiring.
Leading IT companies have either updated or increased their revenue forecasts for the year, with management comments from other sectors reflecting strong optimism about AI-driven growth.
In the banking sector, adjustments made by the Reserve Bank of India regarding priority sector lending and the agricultural portfolio have affected earnings; however, analysts believe these are temporary issues.
Non-banking financial institutions, automobile companies, and non-ferrous metal companies are expected to stand out during this earnings season, analysts added.
Major players like Tata Consultancy Services, Infosys, HCL Technologies, Tech Mahindra, Wipro, HDFC Bank, and ICICI Bank have released their quarterly financial results.
A report predicts a 'Goldilocks' scenario for India in 2026, featuring double-digit nominal growth, decreasing interest rates, a stable currency, and reduced global risks, which together create a favorable environment for stocks, particularly in metals, BFSI, capital goods, and defense.
The report from HDFC Securities anticipates a Nifty earnings growth of approximately 16% for FY27, setting a year-end Nifty target of 28,720 with a return expectation of around 11% for 2026.
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Point of View
It's crucial to acknowledge the transitional challenges faced by Indian corporations this quarter. While current results may seem disappointing due to one-time costs, there's optimism in the air, particularly in the IT sector, with the potential for AI growth. This resilience bodes well for future performance, aligning with our commitment to staying informed and supportive of India's economic journey.
NationPress
21/01/2026
Frequently Asked Questions
What were the main reasons for muted earnings in Q3?
The muted earnings were primarily due to one-time charges associated with the new labour code and transitional costs.
Which sectors are expected to perform well?
Non-banking financial companies, auto manufacturers, and non-ferrous metal companies are expected to show strong performance.
How are IT companies adjusting their forecasts?
Major IT companies have either revised or increased their revenue guidance for the year, reflecting an optimistic outlook driven by AI advancements.
What impact did the Reserve Bank of India's adjustments have?
The adjustments on priority sector lending and agricultural portfolios have temporarily weighed on banking sector earnings.
What is the expected growth for Nifty in 2026?
The report forecasts a Nifty earnings growth of about 16% for FY27, with a year-end target of 28,720.
