Indian corporate profits are currently strong. However, rising input costs present a significant challenge ahead. Investors should remain patient and selective. Sectors like defence, affordable housing finance, and healthcare offer relative stability. Telecom's Bharti Airtel is a key pick. Real estate faces headwinds, except for the affordable segment. The road ahead involves margin pressure and divergence.
India's corporate earnings have surprised on the upside. But according to Dharmesh Kant, Head of Equity Research at Cholamandalam Securities, the good news on profits may be about to collide with a very real cost problem.
"Uncertainty prevails," he told ET Now. And for investors, the message is clear: be patient, be selective, and brace for some turbulence.
The earnings picture is better than headlines suggest
Looking beyond the Nifty basket, the broader picture for Q4 is actually quite strong. Across an aggregate of 400 companies, PAT growth for FY26 came in at 14%, with Q4 alone clocking around 30%. These are robust numbers by any measure.
The problem is what comes next.
Input costs are the new risk
Automobile manufacturers, electrical equipment makers, and other industries are all flagging the same issue in their commentary: input prices are rising sharply. Companies are passing on costs through phased price hikes, but the concern is that all the tailwinds Indian consumers enjoyed — direct tax cuts, indirect tax relief, interest rate reductions — could be wiped out entirely by this inflationary wave.
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Kant estimates a margin compression of around 150 to 200 basis points on an aggregate basis heading into Q1. Since India is a net importer of many raw materials, the pain flows out of the country rather than recycling back into the domestic economy.
His base case is that clarity emerges by mid-June. If the situation extends beyond that, he warns, the worst is not yet behind us.
Three sectors worth owning right now
Despite the uncertainty, Kant identified three pockets of relative stability:
Defence remains a steady compounder. Order books are strong, execution has improved meaningfully across companies, and demand is structurally supported. Hindustan Aeronautics and Mazagon Dock are his top picks in this space.
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Affordable housing finance is another conviction call. With the Pradhan Mantri Awas Yojana continuing to support the segment and interest rate hikes looking unlikely, affordable housing finance companies are well-positioned. Aadhar Housing Finance is the name he highlighted specifically.
Healthcare, particularly diagnostics and hospitals, is emerging as a quiet outperformer. Metropolis and Thyrocare both reported strong numbers, reflecting a broader shift toward preventive and personal care. On the hospital side, Narayana Hrudayalaya and Apollo Hospitals remain solid long-term plays.
Telecom: Bharti Airtel is the only clear bet
On telecom, Kant was candid about saturation. ARPUs across both Reliance Jio and Bharti Airtel have barely moved over recent quarters, signalling that the easy growth phase is over. Data will drive the next leg, but at lower price points.
The standout differentiator for Bharti Airtel is its Africa business, which has performed exceptionally well and is expected to grow at a high-20s to early-30s run rate going forward. If you want telecom exposure, Airtel on any decline is his clear top pick. Vodafone Idea, while cheap on valuation and showing early signs of customer stabilisation, remains a speculation bet.
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Real estate: Proceed with caution
Luxury real estate has cooled after a strong run, and rising input costs are a threat that many developers have not yet fully priced in. DLF's weak Q4 numbers, falling topline and EBITDA, are a warning sign. FY27 looks difficult for the sector as a whole. The one exception remains the affordable segment, which continues to have structural support.
The bottom line: Strong earnings are real, but they are a rear-view mirror. The road ahead has margin pressure, geopolitical uncertainty, and sector-level divergence. Kant's advice is straightforward: stay stock-specific, stay patient, and stick to sectors with genuine structural support.
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