Cost pressure to keep Q1 profit growth muted for Nifty 50 companies

Mumbai: Nifty 50 companies are expected to report year-on-year double digit revenue growth for the June 2026 quarter for the second consecutive quarter after a series of single digit growth in the prior six quarters.

However, net profit growth is likely to remain in single digit for the third quarter in a row amid compressed profit margin on account of input cost inflation. According to the ETIG estimates, revenue and net profit is expected to grow by 10.6% and 5.8% respectively. In the year-ago quarter, revenue and profit growth was 4.9% and 8.5% respectively.

"We expect the June quarter to mark the beginning of an earnings recovery, although the aggregate numbers will be distorted by the sharp weakness in the performance of oil marketing companies (OMC) due to elevated crude prices during the quarter," said Siddhartha Khemka, research head, wealth management, Motilal Oswal Financial Services. He expects a healthy earnings growth of 14% for the companies under coverage excluding OMCs.

Shweta Rajani, associate director, Anand Rathi Wealth, expects profit growth to lag the top line growth for the June quarter. "This suggests that business activity has remained healthy, even as higher operating costs continue to weigh on profitability," Rajani said. She expects the volatility seen during the quarter, including geopolitical tensions in West Asia, to have only a marginal impact on the June quarter earnings, with a larger effect likely to be seen in the coming quarters.

Agencies

Profit growth may stay in single digits for a third quarter as input cost inflation squeezes margins; revenue and profit seen up 10.6% and 5.8%, respectively

Margin Pressure

The aggregate operating margin is expected to shrink by 100 basis points to 21.9% year-on-year, implying input cost pressure. "Margins will be impacted by higher crude-linked input costs, logistics expenses and commodity volatility during the quarter," Khemka said. He believes the pressure is largely transitory and margins should improve over the coming quarters as commodity prices stabilise and operating leverage improves.

According to Rajani, companies with strong pricing power, particularly in consumer businesses and financial services, are expected to protect margins better than sectors with limited ability to pass on higher costs.

Select companies from the automobiles, banking and finance, consumer and metal sectors are likely to report strong growth while capital goods, cement, IT, and pharma companies may report weak numbers.

OUTLOOK
Analysts believe growth to strengthen in subsequent quarters. “We expect earnings growth to strengthen over the remainder of the year as domestic demand improves, policy support continues, interest rates soften and private investment gradually picks up,” said Khemka. He estimates Nifty 50 earnings to grow by 14% and 15% for FY27 and FY28 respectively.

Sector view

AUTOMOBILES
Revenue growth is expected to remain in double digits helped by strong volume growth amid sustained demand pull. However, elevated raw material costs will affect profitability resulting in single digit net profit growth.

BANKING
Deposit growth continued to trail credit offtake during the quarter, implying a sustained elevation in borrowing costs. This is also likely to put pressure on net interest margins even though net profit growth will likely be in double digits. Asset quality is expected to remain stable.

CAPITAL GOODS
Revenue and profit growth is expected to be in single digit given slower execution of projects in the Gulf region and weakness in government orders. The pace in overall order bookings is also expected to be muted and may remain so in the second quarter due to monsoon.

CEMENT
Cement companies are expected to reel under higher input cost pressure, which is likely to compress operating margins. Ultratech is likely to report a low-double digit revenue growth while net profit may grow in single digit year-on-year.

CONSUMER GOODS
Barring ITC, which is expected to fare poorly amid the impact of higher duties, consumer goods companies across categories are likely to report double digit growth in revenue and profit aided by sustained demand. Higher product prices may offer some comfort amid firm input costs.

INFORMATION TECHNOLOGY
Top tier software exporters are expected to show weaker than usual revenue growth in dollar terms given the continued trend of delays in project ramp ups and slower decision making by clients. The year-on-year rupee denominated revenue growth should benefit from a weaker rupee against major currencies.

OIL AND GAS
Oil marketing companies are likely to face higher under-recoveries on fuels and LPG, which are expected to squeeze operating profitability. For oil producers, realisations are expected to improve given heightened crude oil prices while gas distributors will benefit from higher sales volume.

METALS
For ferrous companies, volume growth is expected to be muted amid lower exports. This may be partly offset by price increases and safeguard duty imposition. In the case of nonferrous companies, prices stayed elevated due to supply shortage amid the Gulf crisis. This is expected to result in double digit earnings growth for these companies.

PHARMACEUTICALS
Profitability of pharma companies with overseas exposure is likely to be under pressure given deceleration in the US business. This will be partly offset by a favourable currency movement and better growth in the domestic business. Hospital chains are likely to continue reporting double-digit revenue and profit growth.

TELECOM
Bharti Airtel is expected to report strong net profit growth amid double digit rise in revenue. Improving revenue per user, stable tariff charges and subscriber additions are key positives for the sector.