India Inc.'s Q2 Earnings Show Strong Core Growth But Faltering Non-Core Income

India Inc.'s financial performance in the September quarter (Q2FY26) presents a 'two-speed' narrative. Analysis of 551 listed companies shows core operational income grew by approximately 5% year-on-year, an improvement from the 4% seen in the previous quarter. However, this positive trend was significantly offset by a sharp contraction in non-core income, which includes earnings from sources outside a company's main business, such as interest, dividends, or asset sales. This 'other' income fell by 17% sequentially and 1.5% year-on-year, marking its worst performance in at least nine quarters. This collapse in non-core income, which had previously provided a substantial boost, has pulled overall income growth down to just 2% for the quarter.

Experts like Pranay Aggarwal of Stoxkart and Puneet Sharma of Whitespace Alpha explain this decline as a 'normalization' phase. The previous year's non-core income was inflated by one-time gains from asset sales, subsidiary stake divestments, and favorable market conditions leading to mark-to-market gains in equity and bond portfolios. With markets stabilizing and these 'one-offs' fading, the easy growth cushion is disappearing. Weaker commodity and forex trends have also trimmed non-operating profits.

Consequently, net profit growth slowed to a four-quarter low of 7.5% year-on-year, with sequential profits declining by 6.5%. The Banking, Financial Services, and Insurance (BFSI) sector was particularly weak, showing declines in both core and non-core income, partly due to muted credit growth and potentially lower treasury gains amidst rising bond yields.

Impact: This shift signifies that companies can no longer heavily depend on financial engineering or one-time gains. They must increasingly focus on strengthening core operations for sustained growth. If the core recovery remains shallow or not broad-based, overall headline growth could remain muted, potentially impacting investor sentiment and market valuations. The reliance on core performance for future growth is now critical. Rating: 7/10.

Difficult Terms: Core Operational Income: Earnings generated from a company's primary business activities, such as selling goods or providing services. Non-Core Income (Other Income): Earnings derived from sources outside a company's main operations. Examples include interest income, dividend income, gains from selling assets, or foreign exchange gains. Treasury Gains: Profits made from managing a company's cash reserves, investments, and financial assets, often through trading in financial markets. One-offs: Unusual or infrequent income or expense items that are not expected to recur regularly in the normal course of business. Mark-to-Market Gains: Unrealized profits or losses on investments that are valued based on their current market price, rather than their historical cost. BFSI: An acronym for Banking, Financial Services, and Insurance. Credit Growth: The increase in the amount of loans extended by banks and financial institutions to individuals and businesses. Systemic Credit Growth: The overall growth in credit extended across the entire financial system of a country. Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment.