Newspaper Summary - 161125

 The sources indicate that Q2FY26 was broadly positive for India Inc, delivering strong aggregate financial results, largely driven by cyclical and commodity sectors, despite significant drag from key consumer and technology segments.

India Inc Q2FY26 Aggregate Earnings and Context

Overall, India Inc reported a healthy revenue growth of 9 per cent year-on-year (y-o-y) and earnings growth of 16 per cent y-o-y in Q2FY26, based on the results reported by 2,418 companies.

Key financial metrics highlight the strength of the quarter:

• Excluding banks and financials, the growth metrics increased further: revenue growth stood at 9 per cent and earnings growth surged to 22 per cent y-o-y.
• The strong Q2FY26 results were influenced partly by a favorable base effect, as earnings for the same set of companies had declined by approximately 18 per cent in Q2FY25.
• The performance suggests macro measures are paying off. Future performance for several quarters is expected to be supported by the effects of GST revisions, income tax relief, and lower interest rates.

Sectoral Performance and Dynamics in Q2FY26

Outperformers Leading Growth

Several sectors drove the strong Q2FY26 performance, leading the pack along with automobiles and cement:

1. Refineries: This segment accounted for a significant part of the earnings growth. Profits rebounded strongly, driven by lower crude prices and a better-than-expected improvement in Gross Refining Margins (GRM). This sector achieved growth through both higher revenue and higher profit margins.
2. Cement and Steel: Both industries contributed significantly to India Inc’s growth. They experienced strong demand and a clear volume rebound. Cement prices improved, while steel prices saw a slower recovery. High operating leverage combined with a weak base drove robust earnings growth, particularly in the cement sector.
3. Automobiles: Performance was boosted by strong exports, festival demand, and the initial signs of GST 2.0. This positive quarter eased earlier concerns about fatigue following a multi-year up-cycle. Gains were seen in 2W and 4W exports, and continued demand support is anticipated from rising EV penetration and premium model launches.
4. Pharma/Contract Manufacturing: The sector delivered solid growth. The contract manufacturing segment reported sustained momentum in enquiries and revenue generation, as noted by companies such as Divi’s, Laurus, and Neuland. However, companies with significant US exposure, like Dr. Reddy’s and Sun Pharma, are bracing for the end of the exclusivity period for generic Revlimid.
5. Banks/Financials: Although banks are predicted to have a weak FY26 overall, Q2 performance saw mitigating factors. Banks countered the decline in net interest margins (NIM) with easing liquidity, treasury, and fee income. Credit growth (which had slowed to 10–12 per cent across large banks) is expected to pick up, driven by corporate and retail sectors following recent tax and GST cut measures. Asset quality remained stable.
6. Power: The power sector reported weaker growth in Q2FY26 due to lower seasonal demand. Nonetheless, it continues capacity expansion with a stronger focus on renewables.

Weak Spots and Dragging Sectors

Two major sectors stood out as key weak spots, despite the overall positive outcome for India Inc in Q2FY26:

1. FMCG (Fast-Moving Consumer Goods): This sector posted weak results. The reorganization and focus on new products to handle intense competition kept margins under pressure. The anticipated benefit from the GST cut, which affects approximately 40 per cent of the sector (at HUL), did not play out during the quarter. The overall commentary suggested that FMCG volume growth is still not good across companies. However, specific data from Numerator/Worldpanel showed a volume turnaround in Q2 (July-September), with FMCG sales volume increasing 4.7% y-o-y (up from 3.6% in the preceding quarter), led by household care (6.1% growth) and personal care categories. Urban markets led the growth acceleration at 5.2% compared to 4.2% in rural markets.
2. IT Sector: The IT sector faced a weak outlook. Challenges stemmed from tariff-related uncertainty and shifting client spending amid AI-led disruption. Discretionary spending remained uncertain, though project deferrals appeared stabilized. Revenue growth was modestly aided by a weaker rupee but was inching up only sequentially. Both large and mid-tier IT firms are retooling their workforce for AI, but the earnings impact is subject to close monitoring.

Impact of Market Dynamics on Specific Companies (Q2FY26/H1FY26)

Fallout from the Real-Money Gaming (RMG) Ban

The sharp regulatory change regarding real-money gaming in India resulted in massive balance sheet impairments reported during the September quarter (Q2FY26 earnings cycle):

• Flutter Entertainment (Junglee Games): Booked an impairment of $556 million after its India unit, Junglee Games, ceased money-based rummy operations.
• Nazara Technologies: Recorded an impairment of ₹914.7 crore on its investment in Moonshine Technologies (parent of PokerBaazi) due to new regulations.
• Delta Corp: Wrote down the value of its investments in Deltatech Gaming, Head Digital Works, and OpenPlay Technologies to zero, resulting in a fair value reduction of ₹378.3 crore.
• Paytm (Fintech): Experienced a 98% plunge in net profit after booking a ₹190 crore impairment on a loan extended to its joint venture, First Games Technology.
• More companies exposed to poker, rummy, and fantasy sports are anticipated to report similar impairments in subsequent quarters.

Specific Corporate Q2FY26 Financial Highlights (S&P BSE 500)

The financial data provided for the quarter ending September 2025 (Q2FY26) confirms the widespread growth and specific weaknesses:

• Strong Profit Growth Examples: Reflecting the sector trends, ACC recorded +401.4% Profit (Qty) growth, Ambuja Cements +240.5%, HPCL +2605.1%, Coforge +74.5%, and Bajaj Auto +53.2%.
• Weak/Negative Profit Growth Examples: Reflecting sector weakness, Hindustan Unilever showed a Profit (Qty) growth of only +2.1% (Q2FY26), Colgate-Palmolive recorded -17.1%, and Tata Chemicals experienced -38.4%.

The Q2FY26 earnings broadly confirmed India's macroeconomic recovery, emphasizing strength in manufacturing and commodities, while highlighting structural challenges (AI disruption in IT) and regulatory shocks (RMG ban) impacting specific financial segments.

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Analogy: The performance of India Inc in Q2FY26 is like a train speeding down the tracks (driven by heavy industrial and commodity engines like Refineries and Cement), largely meeting expectations, even though the passenger cars (like FMCG and IT) attached to the back end are currently experiencing turbulence and slower progress. The journey is onward and positive overall, but not every segment is enjoying the ride equally.

The Q2FY26 earnings season demonstrated a "broadly positive" performance for India Inc, largely driven by cyclical sectors and commodities, with several key industries standing out as outperformers. Overall, India Inc reported a healthy revenue growth of 9 per cent year-on-year (y-o-y) and earnings growth of 16 per cent y-o-y. Excluding banks and financials, the aggregate earnings growth was even stronger, rising to 22 per cent y-o-y.

The strong results were noted as indications that macro measures are "paying off" and were supported in part by a favorable base effect, given that earnings for the same companies had declined by approximately 18 per cent in Q2FY25.

The sources highlight the following sectors as primary outperformers and key drivers of this growth:

1. Refineries (Energy/Oil & Gas)

The refineries segment was responsible for a significant part of the overall earnings growth and delivered the largest gains for India Inc in Q2FY26.

• Profit Drivers: The profits for refineries rebounded sharply, mainly due to lower crude prices and a better-than-expected improvement in Gross Refining Margins (GRM).
• Source of Growth: This strong performance resulted from a combination of higher revenue and higher profit margins.
• Financial Evidence: Highlighting this sectoral strength, HPCL reported a Profit (Qty) growth of 2605.1 per cent in Q2FY26. IOCL also posted a strong Profit (Qty) growth of 489.2 per cent.

2. Cement and Steel (Commodities and Cyclicals)

The construction and manufacturing-linked sectors were among the biggest contributors to India Inc's growth.

• Demand and Volume: Both cement and steel sectors experienced strong demand and a clear volume rebound.
• Pricing and Leverage: The cement industry benefited from improving prices and strong earnings growth driven by high operating leverage and a weak base. Ongoing consolidation in the cement industry is adding further momentum.
• Financial Evidence: The cement industry showed impressive quarterly results, with ACC recording a Profit (Qty) growth of 401.4 per cent, Ambuja Cements registering 240.5 per cent growth, Shree Cement achieving 303.6 per cent growth, and JK Lakshmi Cement growing by 163.7 per cent. Tata Steel also reported high Profit (Qty) growth of 311.3 per cent.

3. Automobiles

The auto sector's performance was significantly boosted during the quarter.

• Key Growth Factors: Performance was supported by strong exports, festival demand, and the initial signs of GST 2.0.
• Outlook: This strong quarter eased earlier concerns about "fatigue after a multi-year up-cycle". Continued demand support is expected from premium model launches and rising EV penetration, with companies gaining in 2W and 4W exports.
• Financial Evidence: Bajaj Auto posted a Profit (Qty) growth of 53.2 per cent, while TVS Motor Co. saw Profit (Qty) growth of 41.9 per cent.

4. Pharma and Contract Manufacturing

The pharmaceutical sector, particularly specialized areas, demonstrated solid momentum.

• Sector Performance: The pharma sector delivered solid growth overall.
• Contract Manufacturing Strength: The contract manufacturing segment notably reported sustained momentum in enquiries and revenue generation. This momentum was reported by companies such as Divi’s, Laurus, and Neuland.
• Financial Evidence: Neuland Labs reported exceptional Profit (Qty) growth of 194.9 per cent. Divi's Lab achieved 35.1 per cent Profit (Qty) growth, while Lupin posted 73.3 per cent growth.

5. Financials (Conditional Strength)

The Banks and Financials sector showed resilience during Q2FY26, despite a weaker overall outlook projected for FY26.

• Mitigation of Headwinds: Banks were able to counteract a decline in net interest margins (NIM) through mitigating factors like easing liquidity, treasury, and fee income.
• Expected Future Drivers: Credit growth, which had slowed, is expected to pick up driven by corporate and retail sectors following recent tax and GST cut measures. Overall asset quality remained quite stable.
• Financial Evidence: Muthoot Finance recorded Profit (Qty) growth of 90.4 per cent, and IDFC First Bank saw Profit (Qty) growth of 64.1 per cent.

In summary, Q2FY26 was characterized by strength in cyclicals, capital goods (e.g., BHEL Profit Qty: +253.2%), and manufacturing, indicating a macroeconomic rebound that largely offset the widely acknowledged sluggishness in consumer goods (FMCG) and the IT sector.

The sources highlight several crucial macroeconomic and regulatory factors that influenced the strong overall performance of India Inc in Q2FY26, as well as specific headwinds impacting certain sectors.

1. Underlying Economic Momentum and Favorable Base Effect

The primary macro context for the Q2FY26 results was a discernible economic rebound.

• Positive Aggregates: India Inc reported healthy aggregate results, driven by an economic rebound. Excluding banks and financials, earnings growth surged to 22 per cent year-on-year (y-o-y).
• Base Effect: The strong growth rate was partially influenced by a base effect, as earnings for the same group of companies had declined steeply (around 18 per cent) in the preceding year (Q2FY25).
• Policy Efficacy: The overall positive Q2 results were viewed as evidence that macro measures are paying off.
• Demand Revival: Demand for household products and groceries revived in the July-September quarter (Q2). FMCG sales volume increased 4.7 per cent y-o-y, outpacing the growth seen a year earlier. This resurgence in demand was led by the urban market, which showed 5.2 per cent growth compared to 4.2 per cent in the rural market.

2. Fiscal Measures and Monetary Environment

Policy decisions and market stability are cited as crucial supporting factors for the present and future performance:

• Future Policy Support: The sources indicate that the combined effects of GST revisions, income tax relief, and lower interest rates are expected to support performance for several quarters following Q2FY26.
• Tax Benefits: The anticipation of income tax benefits kicking in, coupled with a good monsoon (which is a general macro positive), is seen as a "cumulatively good thing" supporting demand.
• GST Impact: While initial signs of GST 2.0 were deemed healthy and boosted the auto sector, the GST cut aiding a portion of the FMCG sector did not fully play out in Q2FY26. However, the GST rate reduction on key staples took effect after Q2 (September 22), and the normalization of the supply chain following the cuts is expected to drive volume-driven growth in the fiscal's second half.
• Banking Stability: Banks managed to counter a decline in net interest margins (NIM) through mitigating factors like easing liquidity, treasury, and fee income during Q2. Furthermore, corporate and retail sectors are expected to drive credit growth following recent GST cut and tax measures.

3. Commodity Prices and Currency Dynamics

Fluctuations in commodity prices and currency had a direct impact, notably boosting cyclical sectors:

• Crude Prices and Refineries: The refineries segment drove a significant portion of the total earnings growth. This was primarily due to lower crude prices and a better-than-expected improvement in Gross Refining Margins (GRM). Furthermore, commodity prices generally cooled down during the quarter, and there was no increase in fuel costs.
• Currency Impact: A weaker rupee modestly aided revenue growth in the technology sector. Conversely, an appreciating Indian rupee relative to currencies like the Sri Lankan rupee and Vietnam's dong made these countries more attractive travel destinations for Indians.

4. Regulatory, Geopolitical, and Technological Shocks

External and internal shocks imposed significant pressures on specific industries, despite the positive aggregate picture:

• Real-Money Gaming (RMG) Regulatory Shock: A sudden regulatory change leading to a ban on real-money gaming resulted in massive balance sheet impairment for several domestic and international firms during the September quarter (Q2FY26 earnings cycle). Examples include:
  • Flutter Entertainment booked a non-cash impairment of $556 million.
  • Nazara Technologies recorded an impairment of ₹914.7 crore.
  • Delta Corp wrote down investments leading to a fair value reduction of ₹378.3 crore.
  • Paytm saw its net profit plunge 98% after booking an impairment of ₹190 crore.
• AI-led Disruption in IT: The IT sector faced a weak outlook due to AI-led disruption and tariff-related uncertainty, causing shifting client spending. This structural shift requires firms to rapidly retool their workforce.
• Trade Tariffs: The Centre's strategy to expand seafood exports to alternate markets (EU, Russia, Australia) was necessitated by high US tariffs. Separately, the IT sector's weak outlook was also weighed down by tariff-related uncertainty.
• Geopolitical Alignment: The warming of ties between New Delhi and Beijing is expected to boost Chinese EV makers in the Indian market. Strategic deals, like the HAL-UAC MoU for the SJ-100 aircraft, appear influenced by Russia's need to keep its aircraft program visible despite Western sanctions.