Q1 earnings deliver positive surprise; has market priced in this optimism?

Analysts believe that such high topline growth may be sustainable in the forthcoming quarter as demand continues to be strong.

Q1FY27 delivered a strong earnings surprise, supported by broad-based improvement across consumption, exporters, BFSI and commodities.

According to Nuvama estimates, aggregate PAT growth of BSE500 (ex-OMCs) for Q1 was very strong at 22 per cent Y-o-Y, hitting a three-year high. SMID profits accelerated to 28 per cent Y-o-Y, outpacing large-cap profit growth of 21 per cent. This was also the fourth quarter of PAT outperformance for SMIDs.

The topline growth of SMIDs and large-caps remained similar at 18-19 per cent, Nuvama said. The outperformance was on the margins front – SMIDs’ PAT margin accelerated while that of largecaps was stable.

Smallcaps lead Q1 earnings growth

Motilal Oswal Financial Services said that all categories delivered higher-than-estimated earnings growth. Largecaps (89 companies) posted earnings growth of 21 per cent Y-o-Y vs an estimate of +14 per cent. The midcap universe (101 companies) reported 23 per cent Y-o-Y rise in earnings vs an estimate of 17 per cent — marking an 11-quarter high. Smallcaps (186 companies) outperformed, delivering strong earnings growth of 31 per cent Y-o-Y vs an estimate of +22 per cent.

SAMCO Securities said that Q1 results indicate a clear improvement in revenue growth compared with Q4 FY26. In the Nifty 100, the share of companies reporting +15 per cent revenue growth increased to 60 per cent from 39 per cent. Midcaps also improved, with companies reporting +20 per cent revenue growth rising to 41 per cent from 34 per cent. In the Nifty Smallcap 250, the share of companies delivering +20 per cent revenue growth increased to 44 per cent from 32 per cent.

Profit growth showed a more moderate improvement. In the Nifty 100, the share of companies delivering +15 per cent PAT growth rose to 54 per cent from 48 per cent. In the Midcap 150, companies with +20 per cent PAT growth increased to 55 per cent from 52 per cent. In the Nifty Smallcap 250, the share of companies delivering +20 per cent revenue growth increased to 44 per cent from 32 per cent.

Is the worst behind?

Analysts believe that such high topline growth may be sustainable in the forthcoming quarter as demand continues to be strong. However, it is too early to say that the worst of the corporate earnings slowdown may be behind. If companies deliver another quarter of similar performance, the Street may see a significant re-rating.

Rajesh Agarwal, head of research at AUM Capital, believes that this kind of performance was not expected, especially considering the geopolitical tensions, elevated crude prices, fears of El Niño and several other headwinds. Despite all that, if corporates have delivered such a strong performance, it is very encouraging.

“Although it may not be right to say that the worst is over, the fact is that the Q1 numbers were above expectations. In my opinion, a sustained performance for another quarter could drive a strong re-rating. Already, several brokerage houses and foreign institutional investor desks have raised their Nifty EPS estimates,” Rajesh said.

Oil prices may keep markets range-bound

Analysts said that markets now appear to be pricing in much of this optimism. The only problem the market is unable to digest at this point is high crude prices. Until there is clarity on that front, the market is likely to remain range-bound.

Antu Eapen Thomas, Senior Research Analyst, Geojit Investments, said that the next leg of earnings momentum will depend on stability in margins and whether the current revenue momentum can be sustained after the fading of favourable base effects and commodity tailwinds in H2FY27.

“We expect demand could be supported by the festive season, improved supply-chain stability, accommodative monetary conditions, liquidity and a gradual recovery in exports. While the outlook has turned more constructive, the risk-reward remains selective rather than broadly compelling,” he said.

Disclaimer: Moneywealth research provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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