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India Inc's Q3 Earnings Muted by Labour Code Costs, Better Times Ahead

Early Q3 results for India's Nifty 50 firms were muted, primarily due to one-time charges from implementing the new labour code. Despite this, IT companies reported improving demand as artificial intelligence moves from experimentation to influencing deals and hiring. Banking sector earnings were also weighed down by short-term regulatory adjustments from the RBI. Analysts forecast a strong 'Goldilocks' year for 2026 with double-digit growth and robust equity performance expected.

Key Points: India Q3 Earnings Muted, Outlook Improves Post Labour Code Transition

  • Labour code transition hit profits
  • IT firms raised revenue guidance
  • AI shifting to operational deployment
  • Banks impacted by RBI adjustments
  • 2026 seen as 'Goldilocks' year for equities
2 min read

India Inc shows muted Q3 results due to 1-time factor, better results to follow

Early Q3 results show muted profits due to one-time labour code charges, but IT demand and AI growth signal a stronger outlook for 2026.

"A 'Goldilocks' year is in store for India in 2026 with double‑digit nominal growth, falling rates, stable currency... - HDFC Securities report"

Mumbai, Jan 20

Early results from India Inc's December quarter showed a muted earnings season as one‑time charges tied to the new labour code and other transitional costs weighed on profits, industry analysts said.

About 10 Nifty 50 firms have reported their results so far, mostly IT companies and few banks. Analysts said there were no upside surprises in the results, with most companies delivering mixed results or falling short of expectations.

A major drag on corporate earnings was the transition to the labour code, which took effect in November and introduced changes on wages, workplace safety and social security.

TCS, Infosys and HCL together incurred over Rs 4,373 crore in one‑time charges related to implementation of the new rules, contributing to double‑digit moderation in profit for the quarter.

Despite the short-term pressures on profitability, IT companies saw improving demand conditions, with artificial intelligence moving from experimentation to operational deployment and influencing deal pipelines and hiring.

Major IT companies have either revised or raised their revenue guidance for the year, while management commentary from other companies highlighted strong expectations around artificial intelligence-led growth.

In the banking space, the Reserve Bank of India's intervention on priority sector lending and agriculture book adjustments weighed on earnings but analysts said these were short-term factors.

Non-banking financial companies, auto companies and non-ferrous metal companies' could emerge as the standout performers during the earnings season, they added.

Tata Consultancy Services, Infosys, HCL Technologies, Tech Mahindra, Wipro, HDFC Bank and ICICI Bank have reported their quarterly earnings.

A "Goldilocks" year is in store for India in 2026 with double‑digit nominal growth, falling rates, stable currency, and easing global risks combining to create a fertile backdrop for equities, led by metals, BFSI, capital goods, and defence, a report said.

The report from HDFC Securities said that 2026 looks forecasted Nifty earnings growth of about 16 per cent for FY27, set a 2026 return expectation of around 11 per cent and put a year‑end Nifty target at 28,720.

- IANS

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Reader Comments

P
Priya S
As a small investor, these quarterly results give me anxiety. One quarter it's labour code, next it's RBI intervention. When will we see consistent, clean earnings growth? The 2026 forecast sounds nice, but that's two years away!
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Rohit P
The new labour code implementation costing thousands of crores... hope this leads to better working conditions and social security for employees in the long run. Companies should absorb these costs as part of their social responsibility.
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Sarah B
Interesting analysis. The shift from AI experimentation to deployment is the key takeaway for me. Indian IT firms seem well-positioned to capitalize on this global trend. The short-term hit to profits is a worthy investment for future competitiveness.
V
Vikram M
Focus on metals, BFSI, and capital goods for 2026 makes sense given the infrastructure push and defence indigenisation. This is a classic 'buy on dips' moment if you believe in the India story. Patience is key.
K
Karthik V
While the article is optimistic, I have a respectful criticism. It glosses over the significant compliance burden these new regulations place on mid-sized companies, not just giants like TCS. The transition cost for the broader economy might be understated.
A
Ananya R

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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