**India Inc’s Q1 FY26 Performance: Winners and Losers**
India Inc’s performance in the first quarter of FY26 has been relatively subdued, reflecting a continuation of trends observed in the previous financial year. Companies listed on the BSE500 index, excluding oil marketing firms, reported a year-on-year topline and profit growth of 7%. This single-digit growth pattern mirrors the results from FY25, indicating a broader trend of moderation in corporate earnings. According to Nuvama Institutional Equities, profits have now aligned with a weaker top line, suggesting a widespread deceleration in profit growth across various sectors.
Small and mid-cap companies experienced a slowdown in profit growth following a brief uptick in the previous quarter. In contrast, frontline companies showed slightly better performance, with the Nifty50 index achieving an 8% year-on-year net profit growth, up from 3% in the prior quarter. However, analysts from Motilal Oswal highlighted that the Nifty has reported single-digit earnings growth for five consecutive quarters since the pandemic began in June 2020. Notably, five companies—Bharti Airtel, Reliance Industries, SBI, HDFC Bank, and ICICI Bank—accounted for 77% of the incremental year-on-year earnings growth. Conversely, several firms, including Coal India, Tata Motors, and HCL Technologies, negatively impacted overall earnings. Interestingly, many companies reported higher-than-expected other income, which surged by 31% year-on-year for Nifty50 companies in Q1.
**Banking Sector Performance in Q1 FY26**
The banking sector faced challenges during this quarter, marked by a decline in credit growth, a reduction in net interest margins (NIMs), and asset quality concerns in certain segments, particularly microfinance. Seasonal factors in Q1, ongoing caution in the unsecured lending segment, and a steady decline in retail credit growth (up 12% year-on-year) contributed to this trend. Credit to industries also remained lackluster. Kotak Institutional Equities noted that housing and vehicle credit growth softened further, with year-on-year increases of just 10% and 6%, respectively. Unsecured credit growth, such as credit cards, plummeted from 30% year-on-year in Q1 FY25 to a mere 7% in Q1 FY26.
While most industrial sectors continue to experience muted credit demand, bank credit to non-banking financial companies (NBFCs) further declined to 3% year-on-year in Q1 FY26. However, real estate loans (+15% year-on-year) and trade loans (+11% year-on-year) are among the few segments witnessing robust bank lending outside of retail. Despite these challenges, most banks reported solid deposit growth, with private banks outperforming their public sector counterparts. Nonetheless, growth in low-cost CASA deposits was lackluster, adding to margin pressures.
NIM compression was anticipated during the quarter, influenced by repo rate adjustments affecting yields. Larger private banks (excluding Kotak) and public sector banks performed better than expected, managing to report only a slight contraction in NIMs (7-12 basis points). In contrast, many mid-sized banks faced more significant challenges.
**Conclusion**
The first quarter of FY26 has revealed a mixed bag for India Inc, with subdued growth across various sectors, particularly in banking. As companies navigate these challenges, investors will need to remain vigilant and consider the implications of these trends on future performance.
**FAQ**
**What were the key trends in India Inc’s Q1 FY26 performance?**
India Inc experienced subdued growth, with BSE500 companies reporting a 7% year-on-year increase in topline and profits. The banking sector faced challenges, including weakened credit growth and NIM compression.
