New Delhi: Indian companies are expected to record stronger profit growth in the July to September quarter despite pressure from higher oil prices, geopolitical tensions, a weak monsoon and uncertainty in global markets.
Five brokerages expect net profits of companies in the Nifty 50 index to rise by about 20% from a year earlier. That would follow an 18% increase in the April to June quarter, which was the strongest profit growth in 10 quarters.
The outlook is not expected to be equally strong across all sectors. Financial companies are likely to provide much of the support for overall earnings, while automobile and consumer businesses could benefit from domestic demand. Information technology companies, however, continue to face pressure from cautious spending by international clients and the growing use of artificial intelligence.
Motilal Oswal has given the most optimistic forecast among the brokerages cited, expecting Nifty 50 profits to rise 27%. If achieved, that would be the fastest profit growth in 17 quarters. PhillipCapital has given a more cautious forecast of 13%, citing pressure on profit margins and changes in the business mix outside the oil and gas sector.
The September quarter earnings season begins on Thursday, with Tata Consultancy Services due to report its results later in the day. The results and guidance from major companies are expected to provide investors with a clearer picture of how Indian businesses are dealing with changing economic conditions.
Financial companies are expected to remain a major source of earnings growth. Analysts point to healthy loan growth, lower credit costs and an improvement in asset quality as factors supporting banks and other lenders.
ICICI Bank, State Bank of India and Bajaj Finance are among the companies analysts expect to perform strongly during the quarter.
The earnings outlook comes after the Reserve Bank of India raised its policy repo rate by 25 basis points to 5.50% on October 7. The central bank also changed its policy stance to calibrated tightening as higher energy prices and geopolitical tensions increased concerns about inflation.
The RBI nevertheless maintained a positive assessment of India's economic activity. Official data showed that India's real gross domestic product grew 7.8% in the April to June quarter from a year earlier. The RBI has projected real GDP growth of 7.1% for the full 2026 to 2027 financial year.
Domestic demand is expected to remain an important support for corporate earnings. Early festive inventory building is also expected to support some companies, particularly those linked to domestic consumption.
Overall automobile retail sales remained strong during the quarter, helped by changes in product offerings, pricing and tax related measures. However, tractor sales weakened as poor monsoon conditions affected rural demand.
India's southwest monsoon ended with rainfall 12.6% below the long period average. The weak rainfall has raised concerns about rural consumption and has already affected demand in some parts of the automobile sector.
Higher crude oil prices are another major risk for Indian businesses. India is one of the world's largest crude oil importers, making companies and consumers vulnerable to sustained increases in international oil prices.
Higher crude prices are expected to favour upstream and oil to chemicals businesses, while putting pressure on oil marketing companies. Reliance Industries is expected to benefit from its exposure to businesses linked to higher crude prices, although its retail business is expected to remain relatively softer.
The information technology sector faces a different set of challenges. Major Indian technology companies are dealing with cautious spending by clients, geopolitical uncertainty and pressure on traditional technology services from artificial intelligence.
Analysts expect the sector to deliver relatively weak growth during the September quarter. Investors are also watching whether major technology companies maintain their full year revenue growth forecasts and what they say about demand from overseas clients.
Foreign investor selling has added to pressure on Indian equities. Higher oil prices, tighter financial conditions and uncertainty over global growth have increased concerns among investors even as corporate earnings expectations remain relatively strong.
The September quarter results will therefore be important for assessing the strength of India's economic recovery. Investors will look beyond headline profit figures for signs of sustained domestic demand, cost pressures and the impact of global uncertainty on individual businesses.
The earnings outlook remains positive overall, but the recovery is likely to remain uneven. Banks and selected consumer and automobile companies could continue to benefit from domestic demand, while information technology companies and businesses exposed to higher energy costs face greater challenges.