The Q2 results of Indian corporates have come as a bit of a surprise. Contrary to the cautious sentiment ahead of the earnings season, India Inc. has delivered an impressive performance, reinforcing the belief that the worst may be behind us and that the Indian stock market is poised for a significant upside as earnings growth is expected to further improve in the third and fourth quarters of the current financial year.
Perhaps the market has started discounting earnings growth. On a monthly scale, the Nifty 50 has been in the green since September this year, overall clocking a gain of more than 6 per cent. Year-to-date, the index is up by almost 10 per cent, and if there is no negative surprise, the index could end the year with a decent double-digit growth. Apart from earnings, hopes of an India-US trade deal have also contributed to the market’s healthy performance.
The Q2 show
The Q2FY26 results season was the best in nearly last six quarters, with net profit growth in double digits. The next quarter is expected to be even better.
“There is a mild pickup in Q2 earnings, as the net profit growth is above 10 per cent. In fact, this is the best performance in the last six quarters. Q3 will be much better. Earnings growth will be led by consumer discretionary sectors, particularly automobiles, which performed very well last month and continue to do so this month. We hope this trend continues in FY26 and FY27,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Abhishek Jain, the head of research at Arihant Capital Markets, also underscored that the Q2FY26 earnings have come in better than the 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,” said Jain.
“Consumption is another segment that looks increasingly attractive, as the numbers so far have been soft but are expected to strengthen meaningfully in the coming quarters. Even in sectors where earnings have been weak, stocks have not corrected sharply, which indicates underlying resilience,” Jain said.
Jain finds the auto sector a standout performer, even as valuations are at the higher end.
Jain pointed out that 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.
Zerodha’s Nithin Kamath, too, believes there was a broad-based recovery across sectors in Q2 earnings.
Sharing his views on the social media platform X, and quoting data from IndiaDataHub, Kamath wrote that the aggregate revenues have risen 8.2 per cent year-on-year, while EBITDA and PAT climbed 14.1 per cent and 16.0 per cent, respectively. Excluding financial services, profit growth accelerated to 22.5 per cent.
Is the Nifty 50 ripe for a sharp upmove?
While earnings have improved, elevated valuations remain a key concern, which can keep the gains limited.
“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. Although earnings are improving, other markets like China, Taiwan, and South Korea are much more attractive valuation-wise,” said Vijayakumar.
“If you look at the last 10 years, the long-term P/E average is around 19. Currently, we are still above 20. So yes, valuations are broadly in line but still slightly elevated. Some individual stocks have extremely high P/Es, which pushes up the overall valuation,” Vijayakumar said.
Emkay Global Financial Services, too, underscored earnings broadly held up in the just concluded Q2FY26 earnings season, with some acceleration in PAT. It was, however, skewed toward low-PE sectors like energy and materials.
“We expect an earnings recovery in H2FY26 on the back of consumption bounce-back, and one key positive is that the asking rate for Nifty is a moderate 9 per cent. Valuations are now stretched with the Nifty PE of 20.6 trading at +1sd above LTA, and a worrying 45 per cent of the consensus universe trading at >+1sd above LTA,” Emkay said.
“We maintain our Nifty target of 28,000 for Sep-26E and see moderate returns from here. Sector and stock selection will be key, and our top overweight remains consumer durables,” said Emkay.
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