The Q4 earnings season has just begun, but initial results from frontrunners like TCS and Wipro failed to cheer markets. In any case, expectations are subdued not just for the IT sector but also for overall corporate sector performance, due to the deepening Iran war. Luckily, the March quarter earnings may not be as bad, coming off a high base, but as tensions in West Asia continue to disrupt global shipping routes, causing second-order effects, volatile crude oil prices and a weakening rupee, markets are preparing for any eventuality in FY27. That’s because the lagged effects of the geopolitical tensions that escalated in March may only become evident in the coming quarters. Even if Q4 turns in a better-than-expected performance, fears have gripped markets over the long-term damage the war-torn trade infrastructure can unleash.
As for sectoral impact, the IT sector’s earnings outlook was not rosy even before the war began, due to the adoption of artificial intelligence, which was disrupting traditional business models. Owing to resilient demand, India’s FMCG sector was on the road to recovery, though the current quarter may face downside risks from rising fuel prices, supply disruptions, and currency depreciation. Likewise, the auto sector, which reported strong topline growth in Q3, may deliver decent numbers in Q4 as well, but FY27 may not be as promising due to elevated input costs, such as aluminium and other base metals. Banking sector performance too is likely to be mixed, not just in Q4, but also in the coming quarters. Even though credit growth remains healthy, weakening asset quality, slippages, and the RBI’s recent foreign-exchange measures, which are constraining banks’ other income, may weigh on overall performance. Among all, the pharma sector may deliver better results, though pricing pressures may offset steady growth.
In summary, the January-March quarter was unusual, given two months of relatively benign conditions, followed by a violent March that saw the sudden escalation of the Iran war. It’s possible that companies may report stable or even strong numbers in Q4, though it may or may not hold the same for Q1 of FY27 as the March and June quarters represent two opposite earnings environment—one led by stable input costs and steady demand, and the other stiffled by rising prices, supply shortages, weakening demand and above all volatility and heightened uncertainty.