Expert view: Q1FY27 results likely to remain muted, recovery from Q2 onwards, says Vinod Nair

The Indian market has recently traded with a mild positive bias, though the trend is largely within a narrow range of within 1 to 2% of the last 9 trading days. The Nifty50 has been hovering near its one-month average of 23,800, however could close on a positive note above 24,000 at 24,271 this week. Among large caps, IT and Metals stocks have remained the key laggard but IT showed signs of a gradual recovery this week. Short covering, value buying and AI based business deal by Indian IT firms reversed the late selling. The broader market has witnessed some profit booking in the microcap-to-midcap categories after their healthy performance over the last three months. Over this period, microcaps gained around 30%, followed by small caps at 20% and midcaps at 15%.

Despite the mixed market trend, the underlying market tone remains constructive. While profit booking is visible in some segments, buying interest is emerging in other pockets that have underperformed year to date. In the last three months, microcaps have led the rally, supported by domestic retail inflows and decent Q4 results. However, sustaining this momentum could be challenging amid profit-booking risk and a muted outlook for the upcoming Q1FY27 results. Apart from this, the continued escalation in the Middle East has affected FII behavior, as foreign investors are also attracted to other markets and asset classes that offer a better earnings outlook. At the same time, healthy global bond yields have affected the entry of new forex into India. As any risk of a sustained rise in crude prices can weigh on future earnings expectations. India’s earnings forecast has already been downgraded by 3–4% YTD, from an earlier expectation of 15–16% EPS growth for FY27 to around 12–14%.

The nearly 40% monsoon deficit in June has weighed on market sentiment. However, the sharp decline in crude prices from nearly $100 to about $70 has provided a meaningful offset. The monsoon remains a key variable to watch in July, when the deficit is expected to narrow. Even so, the overall monsoon outlook remains a grey area, with potential upside risk to food inflation in H2 FY27. Markets have largely interpreted the US–Iran–Israel conflict as a localized geopolitical strike rather than the beginning of a broader regional disruption. Consequently, crude prices have seen limited impact and continue to trade near $70. Historically, a one-year monsoon deficit has not derailed India’s stock market, given agriculture’s relatively lower share in overall GDP and the support from other domestic and external factors such as services, manufacturing, FII inflows and external growth.

Although the near-term earnings outlook is negative, the market appears to be treating it as a one-time impact, with expectations of a recovery in corporate earnings from Q2 onwards. Having said that, the full extent of the impact will be better understood only after the results are announced, particularly whether there is any spillover into Q2 through factors such as inventory losses, forex losses or margin pressure. Overall, key risks such as US trade policies and crude oil price volatility appear to be largely priced in. The implementation of the India-UK trade deal in July is also expected to provide a boost to select sectors, particularly textiles. The Q1 impact may also be mostly priced in, though the market will remain watchful of corporate results and the distribution of rainfall in July.

More importantly, the trajectory of FII flows will remain a key driver for the domestic market in H2CY26. Foreign investors continue to favour markets offering stronger earnings growth prospects, while elevated global bond yields have also affected flow of forex to India’s both equity and bond papers.

The author Vinod Nair is the Head of Research at Geojit Investments Limited.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, n...