Q1 Earnings Review: Brokerages give mixed outlook, earnings downgrade ratio drops

Mumbai, Aug 3 (IANS) With 36 companies in India's benchmark index Nifty 50 largely reporting earnings in line with expectations for the June-ended quarter, analysts on Sunday gave a mixed outlook on earnings estimates for FY26.

US investment analyst firm Jefferies indicated that the June-quarter results season has exceeded expectations, while Kotak Securities said that the earnings season showed continued weakness in consumption, muted IT services demand, and weak loan growth for banks.

As of Sunday, a total of 36 companies, from sectors like financials, insurance, FMCG, capital goods, IT, pharma, and oil and gas, have reported their earnings. The combined profit of these 36 companies stood at Rs 1.44 lakh crore, as against investor expectations of Rs 1.43 lakh crore.

Jefferies said that the downgrade ratio it maintains looks optimistic because it has improved sequentially. Around 50 per cent of the companies tracked by Jefferies have seen earnings downgrades as against an average of 57 per cent over the past three quarters. Compared to the prior quarters, with more earnings downgrades, the new estimates indicate a slight improvement in the earnings outlook.

Banks were the key reason for the downgrade, according to Jefferies. The large private banks reported mixed results, with some banks facing asset quality concerns and experiencing an uneven trend in net interest margins. Earnings estimates have been cut by 1-9 per cent for larger private banks. NBFC assets under management and profit growth have been faster, though commentary has been weak on consumer trends, the investment banking firm said.

Kotak Securities remains bearish on the IT sector, citing continued challenges in growth and margin in the face of a persistently low discretionary spending. IT companies also cited uncertainties from macro headwinds, delayed decision-making by clients, and soft discretionary spending. Jefferies, however, upgraded its IT sector rating to ‘neutral’ from ‘underweight’ as it believes that IT stocks can see a ‘tactical bounce’.

The Nifty IT index lost 9.4 per cent in July, marking its second-largest dip in 2025. Below-expectation earnings, global tech weakness and restructuring challenges due to increased deployment of artificial intelligence (AI) are the main disruptors in the IT sector. Last week, TCS announced plans to lay off 12,200 mid- and senior-level employees.

A single-digit EPS growth outlook continues to haunt the sector, Jefferies said. However, it is optimistic of a near-term tactical bounce on an attractive valuation relative to Nifty and free cash flow support.

Kotak Securities projected a muted outlook across sectors, which should result in further cuts in consensus earnings estimates, while Jefferies maintains that the earnings trend should improve in the September-end quarter on a low base and early festive season.

--IANS

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