Q2FY27 Growth Holds Firm, Rising Costs Test Margins: Anand Rathi

Mumbai: Corporate growth appears set to persist in Q2FY27, despite geopolitical instability in the West Asia region, according to Anand Rathi Research’s earnings preview. Strong automobile activity and increased lending growth are expected to bolster performance; however, mounting input costs may exert pressure on profits across various industries.

The brokerage anticipates growth to either maintain or increase in sectors such as building materials, consumer durables, fast-moving consumer goods, specialty chemicals, hospitals, food delivery, quick-service restaurants, and certain retail businesses.

Auto revenue growth is projected at 27% year-on-year by Anand Rathi, primarily driven by enhanced production, premiumization, and price increases. The majority of auto segments, excluding tractors, have demonstrated growth surpassing 20% year-on-year. Automobile EBITDA margins are likely to improve by 20 basis points sequentially. Although a weaker rupee against the dollar and euro, along with price hikes and scale benefits, should offer support, commodity inflation might consume these gains.

Financial institutions and non-banking financial companies have witnessed robust loan growth, with bank credit expansion accelerating to around 19%. Deposit growth has also improved, primarily due to inflows of foreign currency non-resident deposits. Anand Rathi Research anticipates net interest margins and asset quality to remain relatively stable, without significant fluctuations in either direction. Nevertheless, banking profitability continues to face margin pressure.

In the fast-moving consumer goods (FMCG) sector, growth has accelerated to 15.1% in Q1FY27, with Anand Rathi identifying better margins and attractive valuations. The top six IT companies are expected to record a median sequential constant-currency growth of approximately 1.1%, representing a seasonal improvement rather than a resurgence in demand. Margins are expected to remain relatively unchanged as the depreciating rupee provides limited relief amidst wage increases, acquisition amortization, and AI spending.

The specialty chemicals industry is anticipated to achieve robust annual growth through firmer pricing, feedstock cost pass-through, and recovering volumes. Nonetheless, sequential margins may face downward pressure as inventory gains reverse and input and freight costs rise. Similar margin pressures are projected in cement, FMCG, consumer durables, paints, apparel, and footwear retail.