Corporate earnings in Q1 show strong growth, but profitability comes under pressure
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Corporate earnings in India’s key sectors grew strongly in the first quarter of FY27, but profitability came under pressure as higher costs and weak performance in some large sectors offset the broader growth momentum, according to a quarterly tracker by HDFC Securities Institutional Equities (HSIE).
The brokerage said BFSI, metals and information technology were the key drivers of year-on-year earnings growth in Q1FY27, while consumer discretionary and chemicals also reported strong performances. Oil marketing companies (OMCs), however, emerged as a major drag on overall profitability.
Across HSIE's coverage universe, revenue rose 21% year-on-year to ₹28.69 lakh crore in Q1FY27, while profit after tax (PAT) increased 5% to ₹3.13 lakh crore. On a sequential basis, revenue grew 4%, but PAT declined 12%, indicating pressure on profitability despite healthy top-line growth.
The report noted that aggregate profitability moderated mainly because of OMCs. BFSI, IT, energy and metals together accounted for 69% of total earnings in Q1FY27.
Financials lead earnings growth
The financial sector remained one of the strongest performers, with BFSI revenue rising 14% and PAT increasing 13% year-on-year. Within the segment, NBFCs reported particularly strong growth, with revenue and PAT rising 25% and 37%, respectively. Capital markets also delivered robust growth, with revenue increasing 64% and PAT 33%.
HSIE said banks reported strong credit growth, with the system growing at around 17%, although competition for deposits resulted in subdued deposit growth. Improving asset quality, lower operating expenses and provisioning supported profitability. Growth was led by secured retail loans, gold loans, higher-rated corporate borrowers and a recovery in microfinance.
Consumer discretionary and chemicals outperform
Consumer discretionary was another standout sector, with revenue rising 38% and PAT jumping 60% year-on-year. Chemicals reported even stronger growth, with revenue increasing 41% and PAT surging 82%.
HSIE attributed the strong performance in consumer discretionary to healthy demand across paints, jewellery and quick-service restaurants. Jewellery demand remained resilient despite higher gold prices and changes in customs duties, while the paint segment benefited from strong volumes and operating leverage.
Chemical companies benefited from favourable inventory dynamics amid volatility in raw material and product prices linked to the West Asia conflict. Refrigerant gas companies also gained from strong demand and higher R-32 prices.
Oil and gas drags on profitability
The oil and gas sector was a major weak spot. Revenue rose 29% year-on-year, but PAT declined 39%. On a sequential basis, revenue increased 17%, while PAT fell 45%.
HSIE said oil marketing companies benefited from inventory gains and strong refining margins, but these were more than offset by deep marketing losses and LPG under-recoveries. ONGC also faced production constraints, although realisations remained strong.
Industrials also saw a sharp deterioration in profitability. Revenue grew 23% year-on-year, but PAT declined 11%. Infrastructure execution was subdued because of weak NHAI project awards and delays in appointed dates, while elevated costs pressured margins and worsened working capital cycles.
IT growth steady, but decision cycles remain long
The IT sector reported 14% growth in both revenue and PAT on a year-on-year basis. However, median revenue growth for IT services companies was subdued at around 1% quarter-on-quarter in constant currency terms.
HSIE said Tier II IT companies outperformed Tier I players in growth and market-share gains in comparable deals. AI-related projects and vendor consolidation supported revenue, although discretionary technology spending remained muted and decision-making cycles stayed elongated.