BSE500 PAT up 22% — a three-year high — driven by INR depreciation, GST stimulus and low base.
There are earnings seasons that confirm a trend and earnings seasons that mark its peak. Nuvama Institutional Equities’ Q1FY27 BSE500 aggregate suggests this may be the latter. PAT growth of 22% year-on-year — the strongest in three years — is a genuinely impressive headline. Revenue hit a four-year high at 19% growth. SMIDs outperformed large caps for a fourth consecutive quarter. And yet this is not celebratory time, these same drivers will become headwinds in the second half of FY27.
What Drove
The 22% PAT growth and 19% top-line growth were not driven by broad-based fundamental improvement. They were driven by a specific and identifiable set of cyclical and policy tailwinds. INR depreciation boosted exporters’ reported numbers in rupee terms. High commodity prices helped commodity sector revenues. The consumption stimulus from FY26’s GST cuts and RBI regulatory easing supported consumer-facing businesses. And a low base from a weak H2FY25-H1FY26 period made year-on-year comparisons easier across the board.
“Low base, INR depreciation, high commodity prices and FY26’s consumption stimulus have propelled revenue growth higher,” the Nuvama report states. Operating leverage and the utilisation of low-cost inventory further helped manage input price pressures, keeping profit growth ahead of revenue growth.
The sectoral divergence is equally telling. Exporters — chemicals, IT, export auto ancillaries — accelerated. Consumer companies benefited from the stimulus tailwind. Commodity sector profits were strong. But capex-related sectors — industrials, cement — and BFSI grew at a more modest 10-14%. The economy’s strong-seeming aggregate masked a significant divergence in who was benefiting and why.
SMIDs Outperform
Small and mid cap companies delivered PAT growth of 28% year-on-year — materially ahead of the large-cap growth of 21% — marking the fourth consecutive quarter of SMID outperformance. The mechanism was margins, not revenue — top-line growth for both SMIDs and large-caps came in at a similar 18-19%. SMIDs’ PAT margins are recovering the ground lost during H2FY25 and H1FY26, while large-cap margins were stable. “Hereon, for SMID earnings to outperform, top line needs to grow faster.” The margin recovery tailwind for SMIDs is largely played out — future outperformance requires genuine revenue acceleration, which is harder to sustain as base effects normalise.
Sector by Sector
Autos, FMCG and consumer services posted profit deceleration despite reasonable revenue numbers — the low-base tailwinds that had supported these sectors in prior quarters are fading. Durables bucked the trend with profit acceleration on a low base, but Nuvama expects this to moderate.
IT companies disappointed in USD revenue terms — a sign that demand from global clients remains constrained — but weak INR cushioned the impact, driving earnings to mid-teens growth in rupee terms. Chemical companies posted a strong quarter, with Nuvama specifically identifying chemicals as an inflection-point sector aided by supply disruption stabilisation and currency tailwinds. Pharma reported weak numbers.
Metal companies delivered their fourth consecutive strong quarter — driven by supply shocks and AI capex-driven demand for certain metals — but Nuvama cautions that “the base is catching up in metals which could weigh on profits” going forward. Energy profits bounced sharply on the oil shock. Financial sector top-line growth was weak despite strong credit growth as NIM pressure persisted, but credit cost normalisation — particularly in MFIs — accelerated profit growth.
The H2FY27 Warning
The tailwinds that have supported the last four quarters — INR depreciation, GST stimulus, metal price shock, low base, regulatory easing — all begin to fade from H2FY27. The INR depreciation tailwind normalises as currency moves base. The GST stimulus anniversary passes. Metal prices face tougher comparisons. The low base from H2FY25-H1FY26 is replaced by the high base being set now.
“Unless there is a fresh demand stimulus, expect sharp top line and PAT deceleration in H2FY27,” Nuvama states directly. Credit multipliers are weak — private capex has not yet recovered to a level that would generate endogenous demand momentum. And high valuations combined with weak income dynamics reduce the market’s tolerance for earnings disappointment. “Strong Q1FY27 has led to FY27 earnings estimates being stable at 19% growth for BSE500 ex-OMCs. We still think this is a tall task,” the report adds — signalling that the full-year consensus may still need to come down as H2 reality sets in.
Portfolio Positioning
The portfolio allocation that follows from this analysis is specific and actionable. Nuvama’s key overweights are chemicals, IT, private banks and cement. Key underweights are industrials, metals and power. The overweight in chemicals reflects the inflection story — supply normalisation, INR support and improving demand from specialty chemical customers globally. IT is preferred despite the USD revenue softness because rupee earnings are holding and valuations have corrected. Private banks are favoured as credit cost normalisation drives profit acceleration. Cement benefits from price discipline and improving demand.
The underweights tell the other side of the story. Industrials face margin contraction risk as order conversion slows. Metals face base effect headwinds. Power sector profits have been strong but valuations remain stretched relative to the earnings risk in H2.