Elevated energy prices moderate earnings growth estimate for FY27; Here is what investors need to know

Q2FY27 season is at the tail end and earning season is about to begin in second week of October. The Q2FY27 witnessed strong headwinds again with sharp spike in crude oil prices as the tensions in the Middle East rose again. Additionally, the inflationary environment continued to eclipse across the globe.

Meanwhile, the Q1FY27 earnings season witnessed strong surprises in the broader market as the earnings grew over 20-30% across midcaps and smallcaps. Similarly, the largecap companies too posted stellar earnings, except for energy sector which posted a negative turnaround across all major companies.

NIFTY50 has broadly remained negative in the Q2 of FY27, delivering -2.2% returns till date, while the broader NIFTY500 is down 1.4% for the same period. As crude oil prices saw a steep rise of over 50% in Q2 till date. Investors expect the impact to be visible in the upcoming earnings season. Considering the impact of elevated crude oil prices, NSE has revised FY27 earnings estimates for its top 200 companies. NSE’s latest market pulse data report highlights the revision in earnings.

Here is what report highlights for Q2FY27 earnings

Q1FY27 strong growth, ex-energy

The report states that NIFTY500 for Q1FY27 moderated, reflecting margin pressure from higher energy prices. However, excluding energy, the PAT growth was significantly stronger at 22% YoY. Meanwhile, moderation was more pronounced in the Midcap companies, while largecap and smallcap companies posted improvement over the previous year same period. NIFTY Smallcap 250 saw 33% YoY growth in profit after tax for the preceding quarter, validating the rally in smallcap stocks in the recent past. Though the NIFTY50 delivered poor performance in the recent past, but the share of NIFTY50 companies in NIFTY500 profits jumped from 51.6% in FY26 to 53.3% in Q1FY27.

What to expect from FY27

The report further states that against the backdrop of volatile yet elevated energy prices, the earnings estimates for the top 200 well covered companies have been trimmed further. Since end of Q1FY27, the earnings estimate for the top 200 companies by market capitalisation declined 0.9% for FY27. With the trimmed down estimates, the new implied earnings growth now stands at 9.2% as of September and 16.4% since March-end. On the contrary, global brokerages have upgraded earnings growth estimate for FY27 to 7% YoY after the Q1FY27 earnings.

Sectoral winners and losers

At the sector specific level, the report said, “Energy, Materials and Consumer Discretionary accounted for more than 81% of the downgrade since March 2026. In Energy, volatile crude prices and weaker refining margins are expected to weigh on profitability, while Materials has faced lower realisations and higher production costs. Excluding these three sectors, the decline in FY27 earnings estimates was a more modest 1.1%”.

Meanwhile, the share of earnings from Financial sector in the top 200 companies is expected to increase to 38.7% in FY27 as compared to 36.6% in FY26, while the share of the energy sector in earnings is expected to decline from 17.6% in FY26 to 13.4% in FY27.

What investors need to know?

Considering the volatility and moderation in earnings growth, the sectoral rotation will drive the share prices of the stocks in the respective directions. The earnings downgrade led by the energy sector for top companies will shift institutional flow away from the OMCs and key material companies, which will have an impact on margins due to elevated energy prices. On the contrary, where incremental earnings growth is strong, the stocks may witness strong institutional inflows.