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Small Caps Outperform with 22% Earnings Growth in Q3 FY26

Small-cap companies delivered the strongest earnings growth at 22% year-on-year in Q3 FY26, outperforming mid and large caps. Revenue grew 10%, while EBITDA and PAT rose 14% and 15% respectively, exceeding market expectations. Around 36% of companies saw earnings per share upgrades, led by sectors like auto, banking, and IT. The trend signals a broadening corporate earnings recovery and improving investor confidence across market segments.

Key Points: Small Caps Lead India Inc. Earnings Growth in Q3 FY26

  • Small caps grew 22% YoY
  • Revenue up 10%, EBITDA up 14%
  • 36% of firms saw EPS upgrades
  • Upgrades led by auto, banking, consumer durables
  • Downgrades in cement, chemicals, realty
2 min read

Small caps lead India Inc. earnings growth in Q3: Report

Small-cap companies surged 22% in Q3 FY26, outpacing mid and large caps. Revenue grew 10%, with EPS upgrades in auto, banking, and IT sectors.

"Looking into Q4FY26, key monitorable include the pace of NHAI order awards... US market dynamics and RBI rate decisions - Maulik Patel"

New Delhi, Feb 23

India Inc.'s earnings momentum remained resilient in Q3 FY26, with small‑cap companies posting the strongest growth, a report said on Monday.

The report from Equirus Securities said small caps delivered a robust 22 per cent year‑on‑year earnings surge, outpacing mid‑caps at 15 per cent and large caps at 14 per cent, signalling a broadening of the corporate earnings recovery.

Revenue grew 10 per cent YoY, while EBITDA and PAT rose 14 per cent and 15 per cent respectively, ahead of market expectations, across companies under its coverage, the report said.

Around 36 per cent of companies saw earnings per share (EPS) upgrades, reflecting improving business fundamentals and demand resilience across multiple industries. The upgrades were led by auto, banks & NBFCs, consumer durables, FMCG, and IT, while downgrades were concentrated in building materials, cement, infrastructure, chemicals, realty and retail, the report said.

The trend indicates growing investor confidence and improving forward earnings visibility across market capitalisation segments, it added.

Increasing number of firms from tier 2 and tier 3 towns have been tapping the capital markets, as founders look to grow and scale their businesses, said Ajay Garg, Managing Director, Equirus group.

"Looking into Q4FY26, key monitorable include the pace of NHAI order awards for construction companies, the summer season demand cycle for consumer durables, US market dynamics and RBI rate decisions that could influence BFSI NIM trajectories," said Maulik Patel, Director & Head of Research, Equirus Securities.

Price hikes and demand momentum in cement offer near-term support, though new capacity additions may pressure utilisation rates, while logistics remains supported by EXIM recovery and Dedicated Freight Corridor (DFC) connectivity improvements, he added.

In the third quarter, financial services companies demonstrated steady asset quality trends and loan growth momentum, while consumption-linked sectors benefited from improving discretionary spending patterns.

Electronic Manufacturing Services (EMS) and IT companies saw sustained deal momentum and execution strength supporting earnings outlooks, the report highlighted.

- IANS

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Reader Comments

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Priya S
Very encouraging report. The 22% growth in small caps is impressive, but I hope retail investors are cautious. The volatility in that segment is high. Good to see upgrades in FMCG and auto – reflects strong domestic consumption.
A
Aman W
The broadening of recovery is key. For too long, the market rally was driven by a handful of large caps. Now, with mid and small caps participating, it feels more sustainable. Hope the momentum continues into Q4!
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Sarah B
Interesting data point. The downgrades in building materials and cement are a concern though, given the government's continued infra push. Could be a temporary supply glut? The RBI's rate decision will be crucial for the BFSI sector's margins.
K
Karthik V
As a small investor, this gives me confidence to look beyond the Nifty 50 stocks. The report mentions EMS and IT deal momentum – that's where I see long-term potential, especially with the global shift in supply chains.
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Michael C
A respectful critique: While the headline numbers are strong, the article doesn't delve deep into *why* small caps outperformed. Is it a low-base effect, genuine operational efficiency, or just better sentiment? The concentration of downgrades in key infra sectors also needs more analysis.

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