India Inc's October-December quarter earnings results for fiscal 2025-26 were above analysts expectations, according to leading brokerage Citi Research. The headline operating profit or EBITDA for the top BSE 100 companies came at 12% compared to the year-ago period, which was ahead of Citi's estimates and in-line with the long-term growth trends for India.
Q3 headline earnings growth were significantly impacted by labor code one-offs. Citi excluded one-off expenses in its analysis. ''Aside from those, earnings were slightly ahead of expectation across most sectors on EBITDA - led by energy, consumer discretionary and healthcare. Growth slightly ahead of expectations in financials and consumer staples,'' said Citi.
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Favorable risk reward
Overall, Citi Research believes the risk reward is favorable due to improving earnings trajectory, US trade deal should removing uncertainty on exports, and valuations relatively reasonable post the significant underperformance compared to emerging marktes in the past year. Any moderation in the global AI trade system could help India, according to the brokerage. Among the key risks, Citi flags a further slowdown in jobs or wages growth although this has been at play in IT services for some time now.
The volatility in inflows is also a risk. Citi's analysts have pegged the December 2026 target for Nifty 50 at 28, 500. ''Looking ahead, we believe the potential acceleration in earnings growth from the financials, consumer, and industrials pack should more than offset the relative drag from any misses in IT services,'' said Citi Research. The earnings growth was in mid-single digits in FY25.
''We are seeing gradual growth improvements in some sectors. Earnings growth for broad based indices such as BSE 100 and Nify 50 will be in high single-digits by the end of this year and next year it could be in low double-digits. The factors behind this growth and improvement outlook is already built-in,'' said Surendra Goyal, Head -India Research, Citi.
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Citi's top sector, stock picks
Global flows will likely remain volatile in the near-term as AI growth sentiments swing around tech sectors' earnings, capex announcements and product launches. For India, domestic flows into equity AUMs have remained resilient, FII outflows have eased recently on the back of trade deals, stable fiscal and macro and prospects of growth recovery across consumption and capex.
Citi is overweight on financials, telecom, healthcare, and cement sectors. It remains underwieght on IT services, staples, and metals. Among stock picks, Citi prefers Maruti Suzuki India >M&M > Hyundai Motor India in the automobile sector. Among financials and banking, the top picks are HDFC Bank, ICICI Bank, and Kotak Mahindra Bank for Citi Research.
India Inc Outlook
According to the brokerage, Indian equities are set up reasonably well and poised for further growth. In its 2026 outlook, Citi had highlighted multiple reasons behind the positive outlook. Some of those have further improved, as per the brokerage:
(a) Earnings trajectory in Q3 was decent and multiple sectors should see improvement.
(b) US trade deal uncertainty has lifted but more details are awaited.
(c) 45% underperformance vs EM since start of CY25. Valuations relatively more reasonable.
(d) FII flows slightly positive in February 2026 so far. The stability and improvement on flows could be a positive.
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The AI trade continues to be strong. MSCI Korea and Taiwan have outperformed MSCI India by 38% and 17% CYTD and any moderation there could help India relatively, according to Citi Research.
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