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 the top line for the NSE 500 pack grew at a 10-quarter high of 12.9% year-on-year (YoY) in Q3 of FY26. However their PAT growth of 9% YoY was the lowest in the last five quarters, possibly reflecting the one-time impact of labor code provisions.
Excluding oil and gas and financials, growth was only 0.6% as these two sectors accounted for nearly 80% of growth gains, noted the international brokerage.
Midcaps lead the growth
Midcaps extended their growth lead over large and small caps for the sixth consecutive quarter, with their revenues growing 19.6% year-on-year, CLSA said, adding that large caps saw the strongest upgrade for FY27/28. Midcap earnings estimates for FY27 were cut by 0.3%, but upgraded by 0.5% for FY28. “Small caps remained the clear outlier for the third straight quarter, with a sharp cut of 3.9%/3.1% for FY27/28,” notes the international brokerage.
“Consensus has sharply lowered FY27/FY28 EPS for small caps by 3.9%/3.1%, yet more than 62% of companies expect to deliver 20%+ PAT Cagr against less than 40% of companies that have done so in the last four quarters. We see higher EPS downgrades continuing and adding bigger risks to small caps in its favour.
‘Earnings may not be surprising’
CLSA highlighted that consensus now expects NSE 500 earnings to grow at a rate of 16% over FY26-28, led by telecom, real estate and materials. “NSE 250 Small Caps predict fastest growth at 28.4% Cagr, with double-digit gains in all sectors except energy, and led by real estate, discretionary and banks, where expectations model a big pick-up against the current run rate of growth. NSE 150 Mid-Caps expect Cagr to grow 120%, while NSE 150 Mid-Caps expect growth Large caps will grow at 13.4% Cagr,” it added.
The international brokerage said that although the quarter was not a bad one, equity markets fell as earnings failed to impress investors. “We see a clear burden of expectations with elevated valuations limiting scope for large upsides. Limiting EPS downgrades will be critical,” it added.
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