AHMEDABAD, 10 JUNE:
Some of the key insights include:
- Lending and non-lending financials emerged as the strongest performing sectors in Q4FY26.
- Inflationary pressures from rising commodity, fuel, freight and logistics costs are expected to remain a key monitorable.
- The upcoming monsoon will play a critical role in determining rural demand and consumption trends.
- Real estate, automobiles and consumer discretionary sectors reported strong growth, while pharmaceuticals remained relatively weak.
Quarterly Tracker Q4FY26: Inflationary environment ahead; Monsoon a key monitorable
Lending financials (Strong) (Revenue/PAT growth (YoY): 9%/15% and (QoQ): 2%/8%)
- Robust credit growth, margin recovery and an improved asset quality were highlights of strong performance of banks. MSME, gold, vehicle and housing led growth across the sector. NIMs remained resilient and improved marginally due to deposit repricing and favourable funding mix despite cumulative repo cut impact on lending rates. MFI and unsecured retail credit broadly normalized as asset quality improved across the lenders.
- Robust AUM growth for NBFCs as growth of vehicle financiers was aided by GST cut led improved auto and tractor sales, steep gold price rise gave stimulus to gold financing and MFI/unsecured retail segment saw notable recovery with improved collections. Large NBFCs reported NIM reflation and improved asset quality.
Nonlending financials (Strong) (Revenue/PAT growth (YoY): 18%/32% and (QoQ): 15%/27%)
- Resilient performance by life insurance players as industry shifted strategically towards high margin non-PAR and protection plans. Most players reported VNB margin expansion despite loss of GST input tax credits and new labour code impact. Growth momentum varied across players depending upon reliance on specific distribution channels.
- For general insurers, motor TP and retail health insurance drove growth. Loss ratios improved for key insurers while the rising investment income continued to act as a crucial buffer against underwriting volatilities. Exchanges saw massive growth due to market volatilities and derivative volume while depositories were weak due to significant decline in IPO/corporate actions.
Consumer staples (Mixed) (Revenue/PAT growth (YoY): 5%/11% and (QoQ):-4%/2%)
- Recovering urban economy aided by GST related affordability and steady rural consumption created a healthy demand environment. While volume growth was healthy, inflation in key raw and packaging materials led companies to carry out calibrated price hikes and cost optimization. International businesses were impacted due to war led supply chain disruptions.
- Categories like home care, hair care, F&B witnessed strong demand, but unseasonal rains and delayed summer impacted summer categories such as cooling oil/powder, ice cream and cold drinks. El-Nino is the key risk going ahead as below normal and delayed monsoon threatens farm income and rural consumption after two strong monsoon years.
Consumer discretionary (Strong) Revenue/PAT growth (YoY): 53%/61% and (QoQ): 1%/-29%)
- Broad based volume recovery for the paint sector led by urban demand pick up and steady rural growth. Price hikes supported revenue growth however, input cost inflation due to west Asia crisis remains a risk. Strong growth momentum continued for AlcoBev driven by premiumization and supportive policy changes in Karnataka. Robust growth of jewelry segment was primarily led by rising gold prices. Apparel segment witnessed healthy growth as value segment outperformed premium retailers led by recovery in SSSG and retail area expansion.
- Muted demand for RAC and coolers due to unseasonal rains in north India and delayed summer in south. Surging copper and aluminum prices impacted margins. Cables and wires segment slowed down due to channel inventory reduction led by metal price fluctuations. EMS growth rate moderated amid softness in mobile handset market.
Technology (Mixed) (Revenue/PAT growth (YoY): 11%/13% and (QoQ):3%/4%)
- Sector witness further sequential improvement amid delay in discretionary spend recovery led by macro uncertainty, geopolitical unrest and Tariffs. AI led productivity gains are putting pricing pressure on similar scope deals, leading to traditional revenue deflation and reducing TCV.
- Large deals remain healthy as deal wins are driven by AI-modernisation, vendor consolidation and cloud transformation. Revenue conversion is sequentially improving suggesting a gradual growth recovery in FY27. Margins remained resilient supported by improved utilisation levels, reduced subcontracting and currency tailwinds.
Real Estate (Strong) (Revenue/PAT growth (YoY): 26%/24% and (QoQ):26%/21%)
- Robust performance led by significant pre-sales momentum, healthy collections and deleveraging of balance sheets for most of the real estate players. Residential demand (primarily in premium and luxury segment) remained strong and hence developers are betting on healthy launch pipelines to deliver double digit presales growth in FY27.
- Outlook for the sector is optimistic as companies have planned extensive launch pipelines and robust presales targets while focusing on premiumization and geographic diversification. Strong demand for premium residential and commercials properties are expected to absorb these launches comfortably.
Industrials and Infrastructure (Mixed) (Revenue/PAT growth (YoY): 9%/3% and (QoQ): 16%/10%)
- NHAI ordering picked up but remained lower than expectations. Hence, road players continued to diversify away in sectors of solar, BESS, transmission , railways and interlinking of rivers. Muted execution of infra players due to labor shortage in wake of elections were aggravated by input cost pressure. Overseas businesses were impacted adversely due to geopolitical instability.
- Data center is emerging as a primary catalyst driving a decadal investment cycle benefitting EPC players, electrical equipment makers, cooling solution providers, and back up power companies. Industrial companies reported strong revenue growth and healthy order backlog while margins were impacted due to currency depreciation and commodity inflation.
Automobiles (Strong) (Revenue/PAT growth (YoY): 19%/9% and (QoQ): 17%/36%)
- PV segment delivered resilient growth supported by reduced GST; however, they faced rising commodity, fuel and logistics costs as persistent headwinds. To counter input cost pressure, calibrated price hikes are on the anvil. Industry is pivoting towards feature rich vehicles to drive up realisations. CV segment reported healthy growth and improved margins as freight volumes remained robust so far. However, rising input costs, export headwinds due to west Asia war and diesel price hike are expected to keep CV demand muted in FY27.
- Strong double digit revenue growth and resilient margins for the two-wheeler pack led by premiumisation, export recovery, and increasing traction in the electric 2W segment. To counter rising gas, commodities and labor cost, few 2W players have taken calibrated hikes. Electric two wheelers are gradually becoming substantial revenue driver for the 2W companies.
Chemicals (Strong) (Revenue/PAT growth (YoY): 20%/25% and (QoQ): 13%/47%)
- While sector reported strong performance at the aggregate level, individual companies were heavily influenced by segment specific demand, supply chain/logistics disruptions, along with high volatility in input commodity prices and freight costs. Companies focused on CDMO delivered stronger results while commodity chemicals producer faced supply glut led by Chinese dumping.
Cement(Strong) (Revenue/PAT growth (YoY): 9%/35% and (QoQ):18%/162%)
- Strong revenue growth was led by high single digit volume growth and 2-3% realization gain. Volume growth was supported by construction activities and healthy capex momentum in a seasonally strong quarter. Realizations were slightly higher YoY but uneven across players creating a gap between performances of peers.
- West Asia crisis led to higher input costs (freight, packaging, fuel and USD linked materials). Low-cost fuel inventory cushioned the impact, but short cycle packaging procurement faced the heat. Profitability remained healthy due to cost control and efficiency gains, but full impact of inflated fuel, packaging and freight cost pressure is expected to be witnessed in H1FY27.
Energy (Oil & Gas) (Mixed) (Revenue/PAT growth (YoY): 7%/12% and (QoQ): 5%/-4%)
- Strong refining margins and inventory gains led to strong quarter for OMCs while marketing margins were under pressure as rising crude prices haven’t been passed on to retail consumers adequately. LPG under recoveries are aggravating the situation for OMCs. Marketing margins deterioration is further expected to intensify in FY27 given uncertain war environment.
- On the other hand, improved realizations boosted revenue for upstream companies. War led supply disruptions have led to scarcity and a steep rise in gas prices. It is adversely impacting gas demand and denting the profitability of city gas companies. The situation in the energy market is expected to remain fragile as long as the war continues.
Pharmaceuticals (Weak) (Revenue/PAT growth (YoY): 10%/-11% and (QoQ): 1%/-14%)
- Mixed performance by pharma companies as domestic formulations growth was strong but US generic businesses were highly varied across companies. US business performances were led by reducing gRevlimid sales and competitive price erosion. Key sector themes included Semaglutide launch/scale up by large domestic pharma companies. Rising input costs and freight expenses arising from geopolitical unrest are expected to act as persistent headwinds for near term margins.
(Disclaimer: The information provided here is investment advice only. Investing in the markets is subject to risks and please consult your advisor before investing.)
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