Early September-quarter numbers are encouraging, but heavy foreign selling, 24-year-high US bond yields and costly crude mean earnings can steady the market more easily than they can turn it.
As of October 12, 2026, strong Q2 FY27 (July to September 2026) earnings can help put a floor under the Sensex and Nifty, but on their own they are unlikely to reverse the sell-off. Good numbers from index heavyweights in IT, private banking and consumer goods could steady the benchmarks. A lasting recovery also needs foreign selling to ease, global bond yields and crude to cool, and companies to back their results with confident guidance. Until then, expect a stock-by-stock market rather than a broad rally.
Key takeaways
- The Sensex and Nifty fell for eight straight weeks to October 1, their longest losing run in 25 years, before Friday's recovery ended the streak.
- On Monday, October 12, profit booking returned and the Sensex gave up more than 1,200 points from its intraday high.
- Avinash Gorakshakar of Avinash Mentor Research sees aggregate Nifty earnings growth potentially at 15% to 20% year-on-year, but says investors will wait for actual results.
- Early numbers are mixed but constructive: TCS grew profit 14.9%, and HDFC Bank's deposits grew faster than its loans.
- Record foreign selling, a 24-year high in US bond yields and the RBI's first rate hike since 2023 are headwinds earnings cannot fix alone.
- The market is turning bottom-up: companies that beat may be rewarded, while those that miss could fall harder.
Eight weeks down, one day up
Indian equities walked into results season bruised. The Nifty fell 8.74% over eight straight losing weeks, closing October 1 at 22,421.95, with the Sensex at 71,909.70, as elevated global bond yields, higher crude prices and persistent foreign outflows weighed on sentiment.
Friday's recovery, which followed TCS's results, finally broke the streak. It did not hold. On Monday, October 12, investors turned cautious and booked profits, and the Sensex surrendered more than 1,200 points from its intraday high. (Monday's figures are intraday; closing levels may differ.)
That pattern tells you where sentiment stands. Investors will buy on good news, but they are not yet willing to hold. The September-quarter numbers now arriving will decide which way that tension breaks.
Why this earnings season carries extra weight
Persistent foreign institutional investor (FII) outflows, valuation adjustments and global macroeconomic uncertainty have weighed on investor sentiment for months. Of these, corporate earnings are the one factor investors can measure every quarter, which makes this results season the key trigger for the market's next move. A fund manager at LIC Mutual Fund told Mint earlier this year that foreign investors tend to track the trajectory of headline earnings when they set their India allocation.
Avinash Gorakshakar, Founder and Head of Research at Avinash Mentor Research, says investors are closely tracking corporate earnings after a turbulent period marked by FII selling and a prolonged correction. He expects aggregate Nifty earnings growth to potentially reach the 15% to 20% range year-on-year, which could give equities fundamental support. He cautions that investors are likely to wait for actual company results before taking a decisive view on direction.
Seema Srivastava, Senior Research Analyst at SMC Global Securities, calls the early results and business updates mixed but cautiously optimistic. In her view, resilient earnings from key sectors could help stabilise domestic indices despite continued foreign outflows and broader macroeconomic headwinds.
Our analysis: the bar is low, which cuts both ways. Nifty free-float earnings per share grew just 1.6% in FY26 (PL Capital), so 15% to 20% growth would be a sharp acceleration, helped partly by a weak base. Investors will look past the headline rate to the quality of each beat: whether it comes from revenue and volumes or one-off gains, and whether management raises or trims its outlook.
What the first results are saying
TCS: a profit beat on modest demand
TCS opened the season on October 8. Net profit rose 14.9% year-on-year to ₹13,884 crore and revenue grew 11.2% to ₹73,188 crore, with a 24% operating margin (TCS Q2 FY27 fact sheet). The company said annualised AI revenue crossed $3.1 billion, more than 10% of its revenue.
Underneath, constant-currency revenue grew only 0.5% from the previous quarter. Our analysis: the market's warm response shows how far expectations had fallen. When a heavyweight has already been de-rated, a steady quarter with a profit beat can move the stock sharply. The same logic punishes a miss.
Banks: strong volumes, margin questions
Banking and financial services will be among the key sectors to watch as major lenders report. HDFC Bank's provisional update showed gross advances up 16.3% year-on-year to about ₹32.20 lakh crore, and deposits up 18.8% to about ₹33.28 lakh crore. The mix is the catch: low-cost CASA deposits grew 10.8%, while costlier time deposits grew 22.8%, which could pressure margins.
Investors are likely to focus on the metrics below, particularly amid concerns about lending to rural borrowers and sub-prime customer segments.
| Metric | What it tells you | What would reassure the market | What would worry it |
| Loan growth | Demand for credit and the bank's appetite to lend | Steady growth led by secured retail and business loans | Growth driven by riskier unsecured segments |
| Deposit growth and CASA share | How cheaply the bank funds itself | Deposits keeping pace with loans, stable CASA share | Reliance on expensive term deposits |
| Net interest margin (NIM) | Core profitability of lending | Stable or improving margins | Margin compression from costlier funding |
| Credit costs | Provisions set aside for bad loans | Flat or falling provisions | A jump in provisions |
| Asset quality (GNPA, NNPA, slippages) | Share of loans turning bad | Stable ratios, low fresh slippages | Rising stress in rural, microfinance or sub-prime books |
| Management guidance | The outlook for the next two quarters | Confident commentary on growth and margins | Cautious or reduced targets |
Winners and losers will be decided stock by stock
According to Gorakshakar, the market is shifting towards a bottom-up approach. Investors are likely to favour companies that demonstrate earnings strength rather than buy stocks indiscriminately. Strong results from index heavyweights in IT services, select private banks and consumer goods could help establish a floor for the benchmarks. Companies that fail to meet expectations, however, could face sharper reactions as investors become more selective.
Our analysis: this changes what an investor needs to know. Because the Sensex and Nifty are weighted by market value, a few large companies can hold the index steady while many individual stocks fall after weak results. In a market like this, the edge comes from three skills: reading a results table, telling a quality beat from a one-off, and checking whether the price chart confirms what the numbers say.
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Why earnings alone may not turn the market
Better profits are necessary for a recovery, but four forces outside company balance sheets still push the other way.
- Record foreign selling. Foreign portfolio investors pulled a net ₹1.8 lakh crore from Indian equities in FY26, the highest since data began in 1992, including ₹1.18 lakh crore in March 2026 alone, according to NSDL data cited by Mint. They sold about ₹35,860 crore more in September, with financial services the hardest hit.
- Global rates. The US 10-year Treasury yield touched 5.35% on October 8, a 24-year high, with markets pricing roughly 69% odds of another Federal Reserve hike in December. When safe US bonds pay this much, the bar for owning emerging-market stocks rises.
- Tighter money at home. On October 7, the RBI raised the repo rate by 25 basis points to 5.50%, its first hike since February 2023 (RBI circular via TaxGuru), as elevated crude prices kept inflation risks alive. Our analysis: banks with many repo-linked loans may see yields reset faster than deposit costs, but borrowers and rate-sensitive sectors such as autos and real estate face higher costs.
- Cheaper is not the same as a trigger. In June, the Nifty traded at 16.5 times one-year forward earnings, a 13.6% discount to its 15-year average of 19.1 times. Lower valuations can cushion the downside, but if analysts cut estimates after Q2, the market can look cheaper on paper while prices stay under pressure.
Guidance may matter more than the quarter itself. HDFC Bank and Axis Bank report on October 17 and Infosys on October 23 (Kotak Neo). What managements say about demand and margins for October to March will shape earnings estimates, and therefore valuations.
Key market drivers at a glance
| Driver | Latest data point | Likely effect on Sensex and Nifty |
| Nifty earnings | Gorakshakar sees 15% to 20% YoY aggregate growth potential; FY26 EPS grew 1.6% | Supportive if delivered with steady guidance |
| IT (TCS) | Profit up 14.9% YoY; constant-currency revenue up 0.5% QoQ | Supportive for sentiment; demand still modest |
| Banks (HDFC Bank) | Advances up 16.3%, deposits up 18.8% YoY | Supportive on volumes; margins and asset quality are the test |
| FPI flows | Record ₹1.8 lakh crore outflow in FY26; about ₹35,860 crore in September | Headwind until selling slows |
| RBI policy | Repo up 25 bps to 5.50% on October 7 | Mixed: may help some bank margins, weighs on borrowers |
| US 10-year yield | 24-year high of 5.35% on October 8 | Headwind for foreign flows |
| Valuations | Nifty at 16.5x forward earnings in June, below its 19.1x average | Cushions downside; not a trigger on its own |
