India small- and mid-caps seen leading earnings growth

J.P. Morgan expects Nifty 50 earnings to grow 17% year on year in the second quarter of the current financial year, while companies under its coverage are set for 16% net profit growth. Revenue across the covered universe is seen rising 20% in the September quarter, up from 19% in the previous period, although EBITDA margins are forecast to contract by 121 basis points as raw material, fuel, freight and packaging costs bite.

The brokerage said materials and logistics — especially metals — along with hospitals, retail, consumer discretionary companies, industrials and financials should lead growth. It also expects resilient domestic demand, festive-season stocking and favourable pricing in some commodity-linked sectors to support double-digit earnings growth despite input-cost inflation.

The picture is less even elsewhere. Electronics manufacturing services, pharmaceuticals and consumer staples may report strong sales but weaker profit conversion, while information technology services and cement are expected to stay soft. J.P. Morgan said large private banks could still see earnings upgrades after the Reserve Bank of India’s rate hike and a shift to calibrated tightening.

For investors, the implication is that allocation is becoming more important than market beta. J.P. Morgan kept an overweight stance on financials, consumer discretionary, industrials, healthcare and materials, and stayed underweight on IT, while arguing that small- and mid-cap stocks are better positioned to capture the strongest themes in capex and AI infrastructure.

The main risks are familiar but increasingly relevant: food inflation, below-normal rainfall, geopolitical uncertainty and continued AI-led deflation pressure on services. With festive timing also complicating year-on-year comparisons in jewellery, fashion and beauty, the next catalyst will be whether companies can convert higher revenue into margin resilience when earnings results land.