The third quarter (Q3) of FY26 was marked by a high degree of uncertainty over the trade deal with the US (since agreed), a weak rupee and copious foreign portfolio outflows. Yet India Inc. managed to navigate these choppy currents, with direct and indirect tax breaks helping it along. There has been a sequential improvement in results over the previous quarter.
The 1,180 companies which had declared their Q3 earnings by the first week of February reported a strong revenue growth of 10.6 per cent over the corresponding quarter of 2024-25. Now, there are signs that the worst is over. The US and EU trade deals have lifted prospects of a number of sectors. These include textiles, chemicals and gems and jewellery. Several positive knock-on effects could come into play now. For instance, the stability in the rupee will help cool input prices which had compressed gross margins in the third quarter. The ongoing correction in stock markets, along with the recovery in corporate earnings, will help cool valuations and bring them down towards their long-term averages. With the steep valuations being the main concern of many foreign investors, this can help revive foreign portfolio flows as well.
Meanwhile, 11.7 per cent revenue growth excluding the BFSI segment in Q3, indicates that robust consumption is lifting toplines. It has occurred despite the moderation in nominal GDP growth, and is led by sectors such as automobiles and FMCG, which have benefited from GST rate reductions. Other consumption-oriented sectors such as hotels and restaurants, e-commerce, financial services and realty also recorded strong Q3 revenue growth exceeding 15 per cent, benefiting from the income tax cuts in the 2025 Budget. Growth in adjusted profits (excluding extraordinary items) for the same universe was also slightly higher in Q3 of FY26, at 13.02 per cent, compared to the 12.54 per cent growth in the second quarter of FY26. But the aggregate profit growth could be lower if the one-time hit due to the implementation of the new labour codes is accounted for. While the move is good for employees and will add more to their savings and incomes, sectors which have a bigger workforce such as IT have taken large hits.
Banks reported a turnaround in Q3, with profits growing 8.3 per cent, compared to less than 1 per cent growth in the previous quarter. With credit growth improving almost 100 basis points in Q3 and transmission of the rate cuts in fresh loans almost complete, the erosion in net interest margins can be checked. Non-banking financial services companies reported robust growth in profitability as credit growth remained strong across categories. Likewise, infrastructure and construction sectors have benefited from the capex spending of the Centre and States, which in turn has helped cement and steel manufacturers. There are good reasons to believe that FY27 will usher in greater macroeconomic stability, creating a platform for India Inc to lift its performance — and plough back returns into more investments.
Published on February 10, 2026