The final quarter of fiscal year 2026 concluded on a high note. India Inc delivered its strongest revenue growth in three years in the March quarter (Q4FY26), driven by a synchronized recovery in consumption, infrastructure spending and commodity-linked sectors.
Total income rose 12% year-on-year while net sales grew 10.5%, both marking the fastest expansion since March 2023, Mint’s analysis of over 4,000 companies (on a rolling sample basis) from the Centre for Monitoring Indian Economy (CMIE) showed. Net profit increased 21%, reflecting momentum built through the second half of FY26 as lower inflation, tax relief measures, improving rural incomes and stronger discretionary spending revived demand.
Yet beneath the headline strength, the earnings season exposed a mix of long-standing weaknesses and emerging fault lines. From one-off gains boosting profits and a persistent export slowdown to narrowing sectoral leadership and rising margin pressures, the trends raise questions about the durability of earnings growth in FY27.
Exceptional affair
India Inc. reported strong profit growth in Q4, but a meaningful part of the expansion came from exceptional gains. While net profit rose over 20% year-on-year, growth slowed to 15% after excluding one-off items, suggesting the recovery was less robust than headline numbers imply.
Krishna Rao, managing director and co-head of JM Financial Services' equity broking group, cautioned against extrapolating Q4 profit growth into FY27.
He noted that Nifty earnings have repeatedly fallen short of initial expectations despite optimistic forecasts at the start of each fiscal year. With FY27 earnings forecast at 10-12%, Rao warned that higher crude prices, renewed inflation concerns and global uncertainty leave room for disappointment.
Global gloom
India Inc.'s strongest revenue quarter in three years came despite export income contracting more than 20% for a second consecutive quarter. Export income fell 20.5% year-on-year in Q4 after declining 26.4% in Q3, marking the sharpest back-to-back export slowdown since 2023.
Although exports account for a relatively small share of aggregate revenues, the data suggests the second-half recovery was overwhelmingly driven by domestic demand. Export-oriented sectors spent much of FY26 grappling with tariff uncertainty, weak global trade and geopolitical disruptions.
“The absence of IT and pharma from the earnings leadership suggests that weakness in export demand continues to persist,” Rao said.
At this stage, corporate India's reliance on domestic demand could become a vulnerability in FY27 as inflation expectations rise, fuel costs increase and economic growth moderates, said Manish Bhandari, chief executive officer and portfolio manager at Vallum Capital. He cautioned that higher petrol and diesel prices could squeeze household budgets in the coming months, weakening one of the key drivers of the Q4 earnings recovery.
Size divergence
March quarter’s revenue recovery was visible across large-, mid- and small-cap companies. Large-cap total income grew 11% in Q4, while small-cap revenues rose 12.5%, the strongest growth for both segments since March 2023. Mid-cap revenues expanded 10%, their best performance since June 2024.
However, earnings quality differed sharply. While large-cap profits grew 23%, growth slowed to 9.5% after excluding exceptional items. By contrast, mid-cap profit growth improved from 18% to 23%, while small-cap profit growth accelerated from 20% to 33% after adjusting for one-offs.
The data suggests that revenue recovery was broad-based, but medium- and small-sized companies drove the underlying earnings momentum. Yet stronger earnings did not necessarily translate into earnings beats.
According to JM Financial, one-third of small-cap companies in its coverage universe missed earnings estimates in Q4, compared with 29% of large-caps and 18% of mid-caps. Rao said this reflects a recurring pattern where expectations for smaller companies often outpace delivery, raising questions about their valuations. Meanwhile, the relatively low miss rate among mid-caps suggests they occupy the sweet spot between growth and realistic market expectations, he said.
Sectoral show
A handful of sectors tied to consumption and infrastructure spending drove India's earnings recovery in Q4, suggesting the rebound remains dependent on a narrow set of structural winners rather than a broad-based corporate upcycle.
Consumer durables, capital goods, auto ancillaries, metals and mining, and retail emerged as the strongest revenue performers. More importantly, most have consistently featured among the top-performing sectors since Q2FY26.
Profit growth, however, was far narrower. Metals and mining, capital goods, power, construction and auto ancillaries were the strongest contributors, while logistics, agri-related businesses, fast moving consumer goods (FMCG) and textiles saw their profits shrink. Capital goods stood out as the only major sector to deliver relatively smooth revenue and profit growth through FY26.
However, some experts caution that the infrastructure-led earnings theme could face headwinds. Bhandari noted that incremental government spending has increasingly shifted towards subsidies and welfare programmes rather than capital expenditure. He argued that the weak performance of listed infrastructure companies already reflects slowing public capital expenditure, raising questions about how long infrastructure-linked sectors can support earnings growth.
Signs of stress?
Although Indian firms entered FY27 with some of their strongest balance sheets in years, early signs of strain are emerging. An analysis of 2,446 non-financial companies showed operating profit growth before interest and tax, adjusted for exceptional items, nearly halved to 9% year-on-year in Q4 from 16% in the previous quarter as rising input costs weighed on profitability.
This moderation has begun to affect debt-servicing capacity. India Inc's interest coverage ratio slipped to 5.8 times in Q4 from 6.2 times in Q3, suggesting earnings are growing less comfortably relative to interest obligations. While it still remains healthy (above the 1.5-times stress threshold), the steady improvement seen through much of FY26 appears to have plateaued.
The broader picture remains reassuring. Average interest cover improved to nearly 6 times in FY26 from 5.4 times in FY25. Roughly one in four companies remained below the 1.5-times threshold in Q4, unchanged from Q3. Financial stress also remained concentrated among smaller companies, particularly in infrastructure and industrial-linked sectors.
Experts warn that if profit growth continues to soften amid rising input costs, slower economic growth and potentially tighter financial conditions, more companies could slip into the vulnerable category, gradually eroding the resilience corporate India currently enjoys.
Risks ahead
But the risks may extend beyond near-term margins. Bhandari said India faces a broader growth challenge as global investment increasingly shifts towards AI-linked industries while deglobalisation reshapes traditional supply chains. With private investment still lacking a strong trigger and India needing sustained job creation to support consumption, he said reviving the investment cycle remains one of the biggest challenges for corporate earnings growth in FY27 and beyond.
