Mirae Asset Forecasts Q4FY26 Earnings Beat, Warns of Q1FY27 Margin Pressures

Market Expectations Remain Cautious Amid West Asia Crisis

The Q4FY26 earnings season has come to a close, with results surpassing expectations, but management commentaries continue to express caution regarding input costs, supply disruptions, and margin stability, particularly for Q1FY27. Harshad Borawake, Head of Research & Fund Manager at Mirae Asset Investment Managers (India), attributes this caution to the ongoing West Asia crisis, elevated crude prices, and a widening current account deficit.

According to Borawake, the rupee is unlikely to revert to its pre-depreciation levels anytime soon, as the forces driving depreciation remain firmly in place. The rupee's undervalued zone, as per the REER basis, may not be sufficient to reverse its current trend. However, RBI intervention and proactive steps by the government, such as gold import duties and energy conservation, are expected to keep volatility in check.

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In a range-bound market, Borawake's preference is towards domestic cyclicals and earnings visibility stories. His key overweight sectors are financials, healthcare, and consumer discretionary, while he is underweight on oil & gas and IT. The IT sector's current bounce can be attributed to valuation-led and a weaker rupee, but Borawake believes that the sector's fundamentals are more complex, with differentiation between firms that can successfully pivot to AI-led delivery and those that don't.

The IT sector's earnings downgrades have stalled due to INR depreciation, but a strong growth cycle is not yet fully visible. Sustained rerating will require evidence that AI-led spending is translating into meaningful revenue growth. Borawake expects healthy growth in the IT sector this fiscal, driven by rupee depreciation, but notes that the sector's value will only materialise with a growth catalyst.

While Q4FY26 earnings have remained ahead of expectations, management commentaries continue to reflect caution around input costs, supply disruptions, and margin stability, particularly for Q1FY27. A prolonged West Asia conflict could further weigh on profitability, particularly for energy-intensive sectors, while any meaningful resolution could quickly ease cost pressures and stabilise earnings revisions.

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The broader markets may have seen a swift rebound, but the trend is likely to be more selective going forward. For the market to witness a major move, a resolution to the West Asia crisis is needed. Until then, markets may consolidate after a sharp rally from March lows.