The second quarter financial results for Indian companies have delivered a welcome surprise, defying the cautious expectations that prevailed before the earnings season began. This robust performance strengthens the conviction that the economic downturn may be receding and that the Indian stock market is gearing up for a substantial upward trend.
Market Momentum and Earnings Surge
It appears the market has already started factoring in this earnings growth. On a monthly basis, the Nifty 50 index has remained positive since September, accumulating an overall gain of more than 6 percent. Looking at the year-to-date performance, the index has climbed by almost 10 percent. Analysts suggest that barring any negative shocks, the index could close the year with a respectable double-digit growth figure. Beyond corporate profits, optimism surrounding a potential India-US trade deal has also contributed to the market's healthy run.
The Q2FY26 results season has been the strongest in the last six quarters, marked by net profit growth soaring into double digits. Furthermore, the next quarter is anticipated to be even more impressive.
Expert Views on Sectoral Strength
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted the positive trend. "There is a mild pickup in Q2 earnings, as the net profit growth is above 10 percent. In fact, this is the best performance in the last six quarters. Q3 will be much better," he stated. He expects earnings growth to be driven by consumer discretionary sectors, particularly automobiles, which have shown exceptional performance.
Echoing this sentiment, Abhishek Jain, Head of Research at Arihant Capital Markets, confirmed that the Q2FY26 earnings have surpassed initial estimates. "We are beginning to see valuation comfort in select pockets of the market, particularly in financials and NBFCs, where recent corrections have made valuations more reasonable," Jain noted. He also identified the consumption segment as increasingly attractive, with soft current numbers expected to strengthen significantly in the coming quarters.
Jain singled out the auto sector as a standout performer, despite rich valuations. "Several auto companies have posted strong results, and post-GST reforms, we may see additional operating leverage. This could make Q3 and Q4 strong quarters for the sector," he pointed out.
Adding to the consensus, Zerodha's Nithin Kamath also observed a broad-based recovery across sectors in the Q2 earnings. Citing data from IndiaDataHub, he noted that aggregate revenues grew by 8.2 percent year-on-year, while EBITDA and PAT saw robust increases of 14.1 percent and 16.0 percent, respectively. Excluding financial services, profit growth accelerated sharply to 22.5 percent.
Valuation Concerns and Future Outlook
Despite the improved earnings, elevated valuations remain a primary concern that could limit significant gains. Vijayakumar cautioned, "There is no room for a sharp rally because valuations remain high. This is why FIIs have continued to sell—they’ve been net sellers almost every day in November." He compared India's valuation to other markets like China, Taiwan, and South Korea, which appear more attractive.
He elaborated that while the long-term price-to-earnings (P/E) average for the Nifty is around 19, the current reading is still above 20, indicating slightly elevated levels. This is partly due to some individual stocks trading at extremely high P/Es.
Emkay Global Financial Services also underscored that earnings held up broadly in Q2FY26, with some acceleration in profit after tax (PAT), though this was skewed toward low-PE sectors like energy and materials. The firm expects an earnings recovery in the second half of FY26, fueled by a consumption bounce-back. However, they issued a note of caution: "Valuations are now stretched with the Nifty PE of 20.6 trading at +1sd above LTA." Emkay maintains its Nifty target of 28,000 for September 2026, forecasting moderate returns from current levels and emphasizing that sector and stock selection will be critical for investors.
