Q1 Results Review: Earnings Cuts Moderating, Says Motilal Oswal; Sees Nifty 50 EPS Growth At 9% In FY26

Motilal Oswal Financial Services Ltd. sees the corporate earnings in the April-June quarter as "modest but resilient", which was largely in line with the estimates.

"The Q1FY26 earnings have broadly been in line, with the severity of earnings cuts moderating compared to the previous quarters, albeit the trend of a higher number of downgrades continues into this quarter," it stated in a note.

The earnings per share, or EPS growth for Nifty 50 is projected to rise to around 9% in fiscal year 2026, as against an anemic 1% in FY25, as per the brokerage firm.

The EPS growth will be aided by a likely improvement in the macro environment owing to the stimulative fiscal and monetary measures, it said.

"While the Indian equity market has been volatile over the past two months owing to tariff jitters, we believe that improved earnings prospects and reasonable valuations (barring small-caps) should enable the market to achieve modest gains. We believe that the influence of the US tariff wars on Indian markets will be limited," Motilal Oswal added.

The Nifty 50 trades at 22.2x FY26E earnings, near its LPA of 20.7x, the note stated. While the brokerage's model portfolio bias remains towards large-caps (~70% weight), "we have turned more constructive towards mid-caps (with 22% weight vs. 16% earlier) owing to better earnings delivery and improving prospects," it further noted.

Motilal Oswal further said that it is 'overweight' on BFSI, Consumer Discretionary, Industrials, Healthcare & Telecom sectors, while being 'underweight' on Oil & Gas, Cement, Real Estate, and Metals.

"The aggregate earnings of the MOFSL Universe companies grew 11% year-on-year", versus the brokerage's estimate of 9% rise, according to the note.

Excluding Financials, earnings for the MOFSL Universe grew 13% against an estimate of 14%, whereas, barring global commodities (i.e., Metals and O&G), the MOFSL Universe reported a 9% growth as compared to the estimate of 6%.

"The overall modest earnings growth was anchored by O&G (+27% YoY), Telecom (loss-to-profit), NBFCLending (+14%), PSU Banks (+7%), Technology (+7%), Cement (+51%), and Healthcare (+11%), which contributed 77% of the incremental YoY accretion in earnings. In contrast, Automobiles (-3%) contributed adversely to earnings," it stated.

Motilal Oswal also pointed out that this was fifth straight quarter of single-digit net profit growth for Nifty 50. It delivered an 8% growth, as against the brokerage's estimate of 5%.

Five Nifty companies – Bharti Airtel, Reliance Industries, SBI, HDFC Bank, and ICICI Bank – "contributed 77% of the incremental YoY accretion in earnings". Conversely, Coal India, Tata Motors, IndusInd Bank, ONGC, HCL Technologies, Kotak Mahindra Bank, Axis Bank, Eternal, HUL, and Nestle contributed adversely to the earnings, it added.

The beat-miss ratio for the MOFSL Universe was balanced, with 37% of the companies exceeding the brokerage's estimates, while 36% reported a miss at the net profit level, according to the note.

Further, the Ebitda margin of the MOFSL Universe, excluding Financials, expanded by 70 basis points year-on-year to 17.6%, primarily aided by the Oil & Gas, Cement, Telecom, Metals, and Logistics sectors but hurt by the Automobiles, Consumer, Utilities, and Real Estate sectors, it further said.