Weak discretionary spending, AI-led pricing pressure, delayed client decisions, and slow deal ramp-ups weighed on sentimentAI Quick ReadIndia’s preliminary set of Q4 corporate earnings have broadly met expectations, reflecting a balanced mix of strengths and challenges. Optimism is mainly driven by consumer sectors such as FMCG, Retail, and Durables (Auto & Electricals), thanks to steady growth in consumer demand and lower input costs during Dec to Feb. Tailwinds including renewed rural demand, pricing strategies, premiumisation, and government efforts to boost national income and manufacturing productivity. However, similar profitability gains are unlikely in Q1FY27 due to anticipated reductions in cost benefits, even though consumer demand is expected to remain robust.
Earnings performance in the IT and banking sectors has been mixed. The IT sector has faced headwinds, with the index declining amid cautious management commentary and conservative FY27 guidance. Weak discretionary spending, AI-led pricing pressure, delayed client decisions, and slow deal ramp-ups weighed on sentiment. Furthermore, ongoing geopolitical tensions in West Asia have added further uncertainty regarding global markets and U.S. IT spending, resulting in muted growth expectations and limited confidence in a broad-based sector recovery.
In banking, the results indicate a trade-off between margin compression and steady credit growth, leading to a mixed operating environment. PSUB has done better than Private from the P/L points of view with an increase in market share and credit. While large private banks have done better balance sheet and deposit growth positions. Pvt banks elevated credit-deposit ratios have moderated, indicative of lower downside risk to near-term lending capacity. While, for PSUB and smaller banks have seen weakness in MSME and small-ticket loans, a trend that may persist in the near term. Key near-term headwinds of the sector include tight liquidity, slower deposit growth, rising bond yields, forex-related regulations, and higher funding costs, all of which are pressuring margins and treasury income. Despite in the short term, the advantage held by PSUB—driven by market gains and a low C/D ratio—continues to justify sustaining the gained valuation. However, now since the valuation gap between PSU and private banks narrowing, private banks appear better positioned for long-term investment, supported by stronger fundamentals and stability.
Economic activity slowed in March 2026, a key fiscal year-end month, compared to February 2026, suggesting that deterioration could intensify in Q1FY27, particularly due to the negative effects of the West Asia conflict. Additionally, environmental issues like heatwaves and below-average monsoon risks may delay pre- and post-monsoon activities. At the start of the year, the market anticipated average crude prices between $55 and $65 for CY2026, but this has since risen to around $85, indicating increased costs and shrinking profitability.
From a broader market perspective, equilibrium remains elusive, with geopolitical risks continuing to influence sentiment. While the U.S. has indicated a willingness to pursue conflict resolution, and the possible prolonged ceasefire could pave the way for a durable peace agreement. The domestic markets plus 10% rally, from the recent low, has prompted investors to take profits, with crude oil prices crossing $100 as negotiations are at an impasse. There is a considerable risk that this profit-taking trend will continue in the short term unless talks resume with clearer direction. FIIs returned to net selling again after a brief spell of inflows. Sentiments are dented as India macro-outlook is getting further downgraded with the RBI flagging early signs of deceleration. Consensus equity market outlook on India has been cut from positive to neutral due to change in cost dynamics. Nonetheless, optimism surrounding possible peace will prevent deep declines. Investors are therefore likely to maintain a buy-on-dips approach, supported by relatively stable FY27 earnings expectations and contraction in long-term valuation.
The author Vinod Nair is the Head of Research, Geojit Investments Limited.
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