HDFC Securities expects earnings growth for its coverage universe to moderate to 13-14% in Q2 FY27 as rising oil prices squeeze profit margins. While near-term profit growth is cooling, the brokerage remains optimistic about mid-and small-cap stocks driven by domestic capital spending. Investors are now shifting their focus toward management commentary to gauge business resilience for the second half of the year.
HDFC Securities has projected that earnings growth for companies in its coverage universe will moderate to 13-14% for the second quarter of the 2026-27 fiscal year. This marks a deceleration from the 18-19% growth observed in the previous quarter. The brokerage highlights that rising crude oil prices are creating significant margin pressure, affecting how much profit companies can retain from their sales.
Impact on Profit Margins
Sectors such as chemicals, fast-moving consumer goods, and cement are expected to see the most direct impact. Previously, many of these companies benefited from inventory gains, as they held lower-cost raw materials bought earlier. As these advantages normalize, the impact of higher current oil prices is beginning to weigh on overall bottom lines. Investors may observe whether companies are able to pass these costs to consumers or if profitability continues to feel the squeeze.
Manufacturing and Capex Trends
Despite the pressure on quarterly profits, the brokerage continues to favor India’s long-term manufacturing and capital expenditure theme. Private sector spending remains active, with capacity utilization levels estimated at around 75%. Manufacturers of industrial equipment are identified as key beneficiaries, particularly those involved in grid infrastructure upgrades and the development of AI-ready data centers. Global demand for complex engineering parts has also helped Indian manufacturers maintain better pricing power, allowing them to benefit from global technology shifts.
Interest Rates and Regulatory Shifts
Global and domestic monetary policy remains a factor for the markets. HDFC Securities expects a potential 25-basis-point hike from the US Federal Reserve this December, alongside a cumulative 50-basis-point increase anticipated from the Reserve Bank of India by the end of the fiscal year. Higher interest rates typically increase borrowing costs for businesses, which can influence future earnings.
Additionally, the insurance sector faces a changing regulatory landscape. New framework requirements from the Insurance Regulatory and Development Authority of India are expected to trigger an earnings adjustment for digital distributors and lenders that rely heavily on insurance fee income. However, established players with lower expense ratios and proprietary distribution networks, such as Life Insurance Corporation of India and SBI Life Insurance, are expected to remain more resilient against these shifts.
Looking ahead, the most critical element for investors to track is management commentary. Hearing directly from company leadership about how they plan to manage costs and sustain demand through the second half of the fiscal year will be essential for assessing whether the current growth momentum can be maintained.