Q1 FY27 Operating Performance Update
A better-than-expected quarter for corporate India, delivered unevenly.
Dear Investors,
We set out below our portfolio’s operating performance for Q1 FY27, the backdrop against which it was delivered, and what we expect through the rest of the year.
Corporate India entered the June quarter against a difficult backdrop – the West Asia conflict, elevated crude prices, rupee depreciation and monsoon deficiency concerns. Expectations had been set low accordingly ahead of the season. Despite the challenging backdrop, Nifty 50 PAT grew ~15% YoY, marking its strongest growth in ten quarters. Mid-cap and small-cap PAT growth was even stronger at ~21% and ~22%, respectively.
| Median PAT Growth (Ex BFSI) | Q1 FY27 vs Q1 FY26 |
|---|---|
| Equitree Capital (12) | 15.07% |
| BSE 500 (412) | 15.82% |
| Nifty (39) | 15.38% |
| Large Cap (74) | 18.81% |
| Mid Cap (119) | 21.43% |
| Small Cap (512) | 22.28% |
| Micro Cap (1045) | 22.81% |
Figures in brackets indicate the number of companies. Source: Ace Equity, Equitree Capital. As of 15 August 2026. Large cap = 1–100 companies, Mid cap = 101–250 companies, Small cap = 251 onwards up to ₹5,000 Cr, Micro cap = ₹500–5,000 Cr.
The differentiator through the quarter was pricing power. Companies that were able to take price hikes and pass on raw material cost inflation largely protected profitability; those that could not, or that faced supply chain disruption, saw earnings compress. The aggregate data bears this out. Non-BFSI raw material together with power and fuel spend rose approximately 29.5% YoY – the fastest in fifteen quarters – outpacing net sales growth. A significant part of the reported topline was therefore price-led rather than volume-led.
Two caveats attach to the headline number. First, the beat was narrow: ONGC, Hindalco, Reliance, JSW Steel and Bharti Airtel together accounted for around 60% of the increase in Nifty 50 earnings, which makes this substantially a commodity-price and telecom-tariff print rather than a broad-based operating improvement. Second, aggregate PAT growth for the quarter ranges from roughly +4% to +22% depending on the sample and the treatment of OMCs, so any single headline figure needs to be read alongside the universe it is drawn from.
Our Performance
Our portfolio delivered adjusted PAT growth of 15.07% for Q1 FY27. Approximately 66% of our portfolio companies delivered strong performance over the quarter despite the geopolitical backdrop and the input cost pressure described above. Two of our larger holdings were impacted during the quarter; absent that impact, portfolio profit growth would have been close to 20%.
Managements across most of our portfolio companies remain confident of delivering double-digit profit growth for the current year, supported by order book visibility and business fundamentals that we continue to track closely. The pass-through dynamic that separated winners from laggards across the broader market applied within our portfolio as well – companies with pricing power held margin, while those facing fixed contract pricing or supply chain friction absorbed the cost.
We set out below our assessment of the two holdings that weighed on Q1 FY27 earnings.
| Company | Impact on Q1 FY27 Earnings | Our View |
|---|---|---|
| Defence & Railway Technology Player | We understand that execution and margins may not be linear across quarters. | They are sitting on a strong order book. Order book visibility remains intact. FY27 will be significantly better than FY26. |
| Agri Equipment Player | Margins continued to be impacted as expected due to the war, realisation and higher raw material prices. | We expect KUSUM 2 to be announced soon, which is likely to improve the margins and provide growth visibility for the next 3 to 5 years. |
Outlook for FY27
Based on the visibility communicated to us by the promoters of our companies, we are currently working with a portfolio earnings growth estimate of approximately 20–22% for FY27. As has been our practice, this is set on a conservative basis, and we will revise it as the year progresses.
Margins remain the pressure point. Raw material inflation has not fully abated and the companies have responded with price hikes; where the market has absorbed those hikes profitability has held, and where it has not, margin compression has followed. We expect this to remain the central swing factor for the portfolio over the next two quarters.
The India–UK Free Trade Agreement has worked in our favour across several holdings. Order books have strengthened on the back of it and the traction is visible in confirmed intake, with some of these businesses now approaching an inflection point as demand steps up.
Several of our companies have also benefited from the conflict itself, with demand for their products rising through the period. This is a real tailwind for those businesses, though it is event-driven by nature and we are not underwriting it as permanent.
Despite a macroeconomic backdrop that remains uncertain, management teams across the portfolio continue to express confidence in higher double-digit growth, supported by business fundamentals and ongoing growth initiatives.
Risks
- •Geopolitical risk remains elevated – the West Asia conflict continues to disrupt trade routes, raise fuel costs and weigh on sentiment, and could pressure supply chains further.
- •Commodity and energy inflation continues to lift input costs and squeeze operating margins; we expect some of this pressure to persist in the coming quarters.
- •A weaker rupee erodes the margins of businesses dependent on imported raw materials.
- •Inventory-led margin support – low-cost inventory is understood to have aided Q1 FY27 profitability across parts of the market. Higher-cost replenishment could constrain Q2 FY27 margins, and the sustainability of Q1 gross margins is a key monitorable.
- •Rising bond yields and higher interest costs could reverse part of the recent improvement in margins.
- •US tariff uncertainty remains an overhang for export-oriented businesses.
- •The quality of the broader market’s Q1 FY27 beat – concentrated in a handful of commodity and telecom names, and price- rather than volume-led – makes the repeatability of aggregate earnings growth uncertain.
Valuation
Our portfolio currently trades at a median P/E of 15.1x, compared with its 10-year median P/E of approximately 16.6x. The portfolio therefore trades at a discount to its own historical average, notwithstanding the earnings delivery described above.
Our portfolio companies continue to carry strong balance sheets, with a portfolio median D/E of 0.20 and a median ROE of 13.4%.
Transition phases are a recurring feature of the way we invest. In most years since inception, at least one of our holdings has been working through a period of reset – a capacity build, a product transition, a change in the demand mix, or in this quarter’s case an order book whose execution simply refuses to arrive in even instalments. These stretches are uncomfortable to sit through. They are also, in our experience, where a good part of the eventual return is made, and we have generally been paid for patience.
What we watch, quarter to quarter, is whether the operating facts are still moving in the direction we underwrote – order intake, demand signals, balance sheet quality and the candour of management commentary. On that test, the portfolio continues to read the way we expect it to, and the engagement we have had with our companies through this quarter has reinforced rather than diluted our conviction. Share prices will do what they do over a quarter or two; over any period long enough to matter, they have followed earnings, and that is what we are positioned for.
Please feel free to revert if you want to have a specific discussion on any of our portfolio companies.
Thanks & regards,
Team Equitree
Disclaimer
This operating update is prepared by Equitree Capital for informational purposes only and is directed at existing investors of its Portfolio Management Services. It does not constitute investment advice, an offer, or a solicitation to buy or sell any securities.
Past performance is not indicative of future results. Operating performance figures reflect the median of portfolio companies and are not portfolio returns. They are sourced from company disclosures and Ace Equity, and are not verified by any regulatory authority. Individual portfolio performances may vary. Forward-looking statements are subject to risks and assumptions that may not materialise.
Investments in small- and micro-cap equities carry higher volatility, liquidity, and business-specific risks, including the possible loss of principal. Equitree Capital is a SEBI-registered Portfolio Manager. Recipients should consult their independent financial, legal, and tax advisors before making any investment decisions.
This document is private and confidential. It may not be reproduced, redistributed, or published, in whole or in part, without the prior written consent of Equitree Capital.
Equitree Capital Advisors Private Limited