BofA Securities Identifies L&T, UltraTech, Bharti Airtel as Q3 Outperformers Amid Muted Earnings Growth

BofA Securities expects the Nifty index to extend its earnings slowdown in the third quarter, projecting subdued growth of around 5% year-on-year. This represents a sequential decline from 7% growth in the second quarter and 11% in the first quarter, highlighting the ongoing deceleration in corporate earnings momentum.

Despite the broader market challenges, the brokerage has identified specific stocks positioned to deliver strong double-digit earnings growth during this period.

Standout Performers Expected to Drive Growth

BofA Securities highlights five companies as potential outperformers in the current quarter:

The brokerage attributes the strong performance in industrials and cement to execution momentum and operating leverage benefits. Meanwhile, automotive companies continue to benefit from favorable product mix and pricing strategies.

Narrow Base of Earnings Recovery

The earnings growth remains concentrated in specific sectors, with Financials, IT and Telecom together accounting for nearly 60% of overall earnings growth. The sectoral contribution breakdown shows:

Excluding Financials, BofA Securities expects a relatively healthier picture with Nifty earnings growth of 8% year-on-year, driven by 9% topline growth and broadly stable margins. The Sensex excluding financials is projected to deliver even stronger 10% year-on-year earnings growth.

Sectoral Challenges and Opportunities

The brokerage cautions that market sentiment may struggle in the near term, largely due to challenges in Financials and IT sectors, which together command 46% of the Nifty's weight.

For banking, while loan growth shows improvement, softer deposit growth and potential further rate cuts remain key concerns. In IT services, despite positives including easing US rate pressures, improving banking demand and tariff relief, these factors are unlikely to translate into optimistic near-term commentary.

The telecom sector is expected to deliver a stable quarter, with BofA Securities continuing to factor in a headline mobile tariff hike in the second half of calendar year 2026 to support medium-term earnings visibility.

Individual Stock Expectations

Within the Sensex index, BofA Securities expects contrasting performances:

Strong Growth Expected:

• Eternal
• Tech Mahindra
• Bharti Airtel
• Maruti Suzuki
• Mahindra & Mahindra

Weaker Performance Anticipated:

• State Bank of India
• Power Grid
• Axis Bank
• Reliance Industries
• ICICI Bank

Future Outlook and Positioning

Looking ahead, BofA Securities notes that market expectations have already undergone sharp downgrades, with fiscal 2026 and fiscal 2027 Nifty earnings cut by 11% and 6% respectively during calendar year 2025. With consensus estimates now closer to the brokerage's assumptions, further earnings cuts are expected to moderate.

Growth is anticipated to accelerate into financial year 2027, supported by improved loan growth for Financials, discretionary spending aided by GST cuts, telecom tariff hikes, stronger non-ferrous metals performance and recovery from the low base in IT and Staples sectors.

From a positioning perspective, BofA Securities remains overweight on rate-sensitive cyclicals including Financials, Real Estate, passenger and commercial vehicles, and regulated power utilities. The brokerage expects well-off consumption to outperform mass consumption while maintaining preference for defensive sectors such as Telecom and Hospitals.