Small, mid-cap firms to outpace large caps in Q2FY27 earnings growth: Report
The brokerage expects Q2 FY earnings to rise 17% y-o-y for Nifty 50 companies, and 16% net profit growth for its covered companies
J.P. Morgan's research report suggests that domestic small- and mid-cap companies are projected to outpace large-cap firms in earnings growth for the Q2FY27, driven by capital expenditure, modern manufacturing, and AI-led data centre investments. The brokerage anticipates Nifty 50 companies to grow 17% YoY, while the covered companies are expected to record 16% growth in net profit.
Revenue growth is projected to accelerate to 20% in the September quarter from 19% in the previous quarter. However, rising costs for raw materials, fuel, freight, and packaging may negatively impact profitability. The report identifies materials, logistics, metals, hospitals, retail, consumer discretionary, industrials, and financials as the sectors likely to lead earnings growth.
Despite cost pressures, resilient domestic demand, early festive-season inventory building, and favorable pricing in select commodity-linked sectors are expected to support double-digit growth. EBITDA margins for covered companies are anticipated to contract by 121 basis points YoY, while large private banks may see further earnings upgrades following the RBI's rate hike and transition towards a calibrated tightening stance.
The brokerage warns of risks such as rising food inflation, below-normal rainfall, geopolitical uncertainties, and continued pressure on IT services from AI-led deflation. J.P. Morgan maintains an overweight position on financials, consumer discretionary, industrials, healthcare, and materials while remaining underweight on information technology.
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