Q1 Earnings Review: Are Brokerages Offering a Mixed Outlook as Earnings Downgrade Ratio Falls?
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Synopsis
As India's Nifty 50 index sees earnings align with expectations, analysts share mixed insights for FY26. Jefferies highlights positive trends, while Kotak Securities warns of ongoing challenges across various sectors. What does this mean for investors?
Key Takeaways
- 36 companies in Nifty 50 reported earnings in line with expectations.
- Jefferies sees an improved downgrade ratio.
- Kotak Securities warns of challenges in the IT sector.
- Mixed results from large private banks indicate asset quality issues.
- Overall earnings outlook remains cautious.
Mumbai, Aug 3 (NationPress) With 36 companies listed in India's benchmark index Nifty 50 primarily reporting earnings that align with forecasts for the quarter ending in June, analysts provided a diverse outlook on earnings projections for FY26 on Sunday.
The US investment research firm Jefferies noted that the results for the June quarter have surpassed expectations, while Kotak Securities pointed out persistent weaknesses in consumption, tepid demand for IT services, and sluggish loan growth among banks.
As of Sunday, 36 companies across various sectors—including financial services, insurance, FMCG, capital goods, IT, pharmaceuticals, and oil and gas—have disclosed their earnings. The total profit reported by these companies was Rs 1.44 lakh crore, which is slightly above the anticipated Rs 1.43 lakh crore.
Jefferies expressed optimism regarding the dilution ratio, indicating a sequential improvement. Approximately 50 percent of the companies monitored by Jefferies have experienced earnings downgrades, down from an average of 57 percent in the previous three quarters. The latest estimates suggest a modest enhancement in the earnings outlook compared to earlier periods.
According to Jefferies, banks were a significant factor behind the downgrades. Large private banks reported mixed performances, with some grappling with asset quality issues and an inconsistent trend in net interest margins. Earnings forecasts for major private banks have been reduced by 1-9 percent. However, non-banking financial companies (NBFCs) have shown faster growth in assets under management and profits, although commentary on consumer trends has been weak, the investment banking firm noted.
Kotak Securities maintains a bearish stance on the IT sector, citing ongoing challenges in growth and margins amid persistently low discretionary spending. IT firms have also mentioned uncertainties arising from macroeconomic headwinds, delayed client decision-making, and reduced discretionary spending. Conversely, Jefferies upgraded its rating for the IT sector from 'underweight' to 'neutral', believing that IT stocks may experience a 'tactical bounce'.
The Nifty IT index fell by 9.4 percent in July, marking its second-largest decline in 2025. Factors such as underwhelming earnings, global tech setbacks, and restructuring challenges due to the increased deployment of artificial intelligence (AI) have been identified as primary disruptors in the IT landscape. Last week, TCS revealed plans to terminate 12,200 mid- and senior-level jobs.
A single-digit EPS growth outlook continues to plague the sector, according to Jefferies. Nevertheless, it holds an optimistic view of a near-term tactical rebound based on attractive valuations in comparison to the Nifty and solid free cash flow.
Kotak Securities anticipates a subdued outlook across sectors, potentially leading to further reductions in consensus earnings estimates. In contrast, Jefferies believes the earnings trend should show improvement by the end of September due to a low base and the early festive season.
Point of View
It is crucial to recognize the nuances in the recent earnings reports from the Nifty 50 companies. While there are signs of optimism from Jefferies, Kotak Securities' caution reflects the broader economic landscape. It is essential for investors to remain vigilant and informed as we navigate these mixed signals, keeping in mind that the future may hold opportunities amidst challenges.
NationPress
19/08/2025
Frequently Asked Questions
What were the earnings results for the Nifty 50 companies?
The earnings results for the 36 companies in the Nifty 50 index were generally in line with expectations, with a combined profit of Rs 1.44 lakh crore.
Why is there a mixed outlook for FY26?
Analysts have provided a mixed outlook for FY26 due to varying performances across sectors, with Jefferies highlighting potential improvements while Kotak Securities points out ongoing weaknesses.
What challenges is the IT sector facing?
The IT sector is grappling with low discretionary spending, macroeconomic uncertainties, and restructuring challenges, leading to a bearish outlook from Kotak Securities.
How have earnings downgrades changed recently?
Jefferies reported that the earnings downgrade ratio has improved, with around 50 percent of companies experiencing downgrades compared to 57 percent in previous quarters.
What is the outlook for banks in the current earnings season?
Banks have shown mixed results with some facing asset quality concerns and uneven net interest margins, resulting in earnings estimates being reduced by 1-9 percent.
