This comes as broader markets continue to see strong volatility, after an earlier sharp rally raised questions around fair valuations.
In its latest ‘India Strategy’ report, CLSA said that the top line for the NSE 500 pack grew at a 10-quarter high of 12.9% year-on-year (YoY) in Q3 FY26. However their PAT growth of 9% YoY was the lowest in the last five quarters, possibly reflecting the one-time impact of labour code provisions.
Barring oil & gas and financials, the growth was only 0.6% as these two sectors accounted for nearly 80% of the incremental profit growth, the international brokerage noted.
Midcaps extend growth leadership
Midcaps extended their growth leadership for the sixth consecutive quarter over large and small caps, with their earnings growing 19.6% YoY, CLSA said, adding that large caps saw the strongest upgrades for FY27/28. Midcap earnings estimates were reduced by 0.3% for FY27, but upgraded by 0.5% for FY28. “Small caps remained the clear outlier for the third straight quarter, with sharp cuts of 3.9%/3.1% for FY27/28,” the international brokerage noted.
“Consensus has cut FY27/FY28 EPS by a steep 3.9%/3.1% for small caps yet still expects over 62% of companies to deliver a 20%+ PAT Cagr versus less than 40% actually having done this in the trailing four quarters. We see high EPS downgrade risks in small caps and continue to favour large caps,” it added.
‘Earnings couldn’t surprise’
CLSA highlighted that the consensus now expects NSE 500 earnings to compound at 16% over FY26-28, led by telecom, real estate and materials. “NSE 250 small caps are forecast to deliver the fastest growth at a 28.4% Cagr, with double-digit gains across all sectors except energy, and led by real estate, discretionary and banks, where expectations model a big pick-up versus the current run rate of growth. NSE 150 mid-caps are expected to grow at 22% Cagr, while consensus expects NSE 100 large caps to grow at 13.4% Cagr,” it added.
The international brokerage said that the equity market has fallen despite a not-so-bad quarter as earnings have not been able to surprise investors. “We see a clear burden of expectation along with elevated valuation limiting the scope of large upsides. Limiting EPS downgrades will be very important,” it added.
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