India Inc's Q2 FY26 Earnings: Sales Grow 6.8%, Profits Rise 16.2% Amid Cautious Capex

India Inc.'s Q2 FY26 results reveal a mixed financial performance. The aggregate net sales for 2,305 non-financial companies saw a 6.8% year-on-year growth, the highest in several quarters, with manufacturing and services sectors showing a decent bounce, particularly notable given falling inflation. Profit after tax (PAT), after adjusting for exceptional items, grew by 16.2% year-on-year for the sample, though this was well below the previous quarter's growth and significantly boosted by a low base effect from prior periods' contractions.

Sector-specific performance varied. Marine foods, gems and jewellery, and textile companies generally performed well. Computer software companies, however, reported a modest profit growth of 3.75%. Consumer goods firms' net sales growth was similar to the previous quarter, with domestic appliance makers experiencing a slight contraction, while automobile firms, especially those manufacturing two and three-wheelers, saw strong sales. Trump's punitive tariffs had no discernible impact on Q2 results.

Operating margins remained robust, at 12.6% for the manufacturing sector and 15.7% for the non-financial sector overall. Most importantly, Return on Capital Employed (ROCE) for the non-financial sector reached a multi-year high of 9.5% in the first half of FY26. The sector's debt-equity ratio is also notably low at 0.5.

Impact

Despite these strong financial metrics and low debt levels, Corporate India is hesitant to significantly expand capital expenditure (capex). Net fixed asset growth in the non-financial sector for H1 FY26 was a tepid 6.7%. This caution is attributed to persistent global uncertainties, including trade policies and volatile trade conditions, coupled with concerns about demand sustainability, making companies reluctant to commit to long-term capital investments.

The financial sector reported PAT growing by 9.1% year-on-year, with ROCE remaining steady around 5%.

Outlook for the second half of FY26 is positive, with expected tailwinds from GST rate cuts, festive spending, lower inflation, improved liquidity, and potential interest rate cuts from the Reserve Bank of India. Expectations of a trade deal with the US and reduced global uncertainty also contribute to positive market sentiment.

Impact Rating: 7/10. This analysis of India Inc.'s performance is highly relevant for investors, providing insights into corporate health, investment trends, and future growth drivers. The divergence between strong profitability and weak capex is a key point for assessing long-term market potential.

Difficult Terms:

• Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets like property, buildings, or equipment.
• Q2 FY26: The second quarter of the Indian financial year 2025-2026, typically covering the period from July 1, 2025, to September 30, 2025.
• India Inc.: A collective term referring to the corporate sector of India.
• Net Sales: The total revenue generated by a company from its sales of goods or services, after deducting returns, allowances, and discounts.
• Profit After Tax (PAT): The net profit remaining for a company after all expenses, including taxes, have been deducted from its total revenue.
• Base Effect: A statistical phenomenon where the comparison of economic data between two periods is influenced by the level of the data in the corresponding period of the previous year. A low base in the previous year can make current-period growth appear higher.
• Operating Margins: A profitability ratio showing the percentage of revenue that remains after deducting the cost of goods sold and operating expenses.
• Return on Capital Employed (ROCE): A profitability ratio that measures how efficiently a company is using its capital (debt and equity) to generate profits.
• Debt-Equity Ratio: A financial leverage ratio that indicates the proportion of a company's financing that comes from debt versus equity. A lower ratio generally indicates lower financial risk.
• GST: Goods and Services Tax, an indirect tax levied on the supply of most goods and services in India.
• Deflationary Impact: The tendency for the general price level of goods and services to fall, often associated with a decline in aggregate demand.
• Nominal GDP Growth: The growth in the market value of all final goods and services produced in an economy in a given year, measured at current prices without adjusting for inflation.
• World Policy Uncertainty Index: A measure that tracks the level of uncertainty related to government policies across different countries.
• World Trade Uncertainty Index: A measure that tracks the level of uncertainty related to global trade policies and conditions.