Corporate earnings in Q1 India showcase a continuous struggle to achieve double-digit growth gains
In the heart of India's financial landscape, the year FY26 is shaping up to be a complex tapestry of opportunities and challenges. The country's projected GDP growth of around 6.5% is buoyed by domestic tailwinds such as low inflation, a benign interest rate environment, good monsoon expectations, and rising government capital expenditure.
However, global headwinds like geopolitical tensions and trade uncertainties persist but are expected to be offset by India’s strong domestic market and government interventions. Let's delve into the key sectors that are making headlines.
Banks
The Reserve Bank of India (RBI) implemented a monetary easing cycle, cutting interest rates by 100 basis points during FY25-26. Despite strong bank balance sheets and favorable monetary policy, credit growth has moderated recently, with the figure standing at 10.4% as of June 2025, compared to 13.9% a year ago. This slowdown in credit uptake could restrain the banking sector’s growth momentum.
Automobiles
The overall domestic consumption growth, bolstered by rising incomes and employment, along with an improving rural demand due to expected good monsoon, benefits automobile sales. Lower borrowing costs also encourage vehicle financing. However, global trade uncertainties and potential tariff risks could affect exports of automotive components, an important sub-sector.
Pharmaceuticals
This sector benefits from stable domestic demand and increasing healthcare needs. Lower inflation aids household spending power, indirectly supporting pharmaceutical sales. Nevertheless, potential global supply chain disruptions and trade policy uncertainties may pose export challenges.
Information Technology (IT)
The IT sector’s growth is supported by increased digital adoption and stable domestic economic conditions. However, global geopolitical tensions and trade policy uncertainties can impact export-driven IT services, which form a major revenue source.
Fast-Moving Consumer Goods (FMCG)
FMCG benefits from robust rural and urban consumption, rising incomes, and low inflation increasing consumer purchasing power. Stable inflation near 2.1% CPI headline in June 2025 supports discretionary spending. A gradual recovery is expected in the second half of FY26 for the FMCG sector, with a trickle-down of tax and rate cut impact reviving the urban segment as well.
As we navigate through FY26, it's clear that an overall pickup in economic activity is needed to drive broad-based consumption and corporate growth. Segments like home loans are doing well in banks, while unsecured lending is being actively contained. The FMCG sector continues to face margin pressure due to the added cost of promotions and competition from e-commerce reliant standalone brands.
In the IT sector, management is attempting to deal with AI-induced deflation in billing by deploying AI enterprise platforms to drive internal efficiency. Growth estimates for the IT sector in FY26 are hovering at low single digits.
The construction materials sector, including steel and cement, are facing better prospects from improving realisations and demand. Refineries and Power Generation are expected to perform well, with the improvement in gross refining margins being a cyclical support despite lower crude prices. Steel prices are expected to stabilize with the imposition of import duties.
In conclusion, India's FY26 economy is a blend of promising domestic growth and global uncertainties. As we move forward, it's crucial for investors and businesses to stay vigilant and adapt to the ever-changing landscape.
This article was published on August 2, 2025.
- The automotive business, driven by domestic consumption growth and lower borrowing costs, is benefiting automobile sales, but global trade uncertainties and potential tariff risks could affect automotive components exports.
- In the IT sector, growth is supported by increased digital adoption and stable domestic economic conditions, but global geopolitical tensions and trade policy uncertainties can impact export-driven IT services.
- The pharmaceuticals industry is bolstered by stable domestic demand and increasing healthcare needs, but potential global supply chain disruptions and trade policy uncertainties may pose export challenges.
- Banks are experiencing a slowdown in credit uptake despite strong balance sheets and favorable monetary policy, which could restrain the banking sector’s growth momentum.
- In the FMCG sector, robust rural and urban consumption, rising incomes, and low inflation are increasing consumer purchasing power, but the sector continues to face margin pressure due to promotional costs and competition from e-commerce.
- Investors and businesses must stay vigilant and adapt to the ever-changing landscape as they navigate through India's FY26 economy, which is a blend of promising domestic growth and global uncertainties. This analysis is based on financial, investing, and economic aspects of different key sectors and is available to subscribers on the given date.
