1. Good Q2 results of Cummins India

Cummins India has provided a strong performance of 30 September 2025 (Q2 FY26) numbers. Key highlights:

• Revenue increased by approximately 28 percent compared to the same period last year to approximately 3,122 crore. 

• Net profit increased by a factor of ~41-42 YoY to an amount of approximately 638 crore. 

• The domestic sales increased by approximately 28 percent YoY and 10 percent SEQ; export sales increased by approximately 24 percent YoY.
  
• EBITDA margin has increased: e.g., the margin in Q2 was 1.74% of the same quarter last year, which was -1.78%. 

• The company reported a robust demand in the power generation/engine business (highly data-center order) and robust growth in distribution and exports. 

• Brokerages have responded by becoming bullish: at Nuvama Institutional Advisors Ltd, the post-results increase in target on Cummins India occurred. 

The performance of the company has thus far been well beyond expectations, which brings some hope that momentum in operation is a reality.

2. Growth Drivers & Outlook

Cummins India has a growth thesis that is based on:

• The power/generation equipment (particularly data-centre infrastructure, captive power, etc.) upcycle that Cummins has a huge portion of.

• Tailwinds in domestic demand in India: industrialization, infrastructure, and urbanization of India as well as export markets.

• Efficiency, cost-controlling opportunities in operations, and value-added products.

• The firm also kept an optimistic tone for FY26, projecting double-digit growth in terms of revenue and consistent margins. 

3. But -Have Valuations Priced much of The Good News?

This is where the warning comes in. Although the results are good, some of the concerns are legitimate:

• Results were soon followed by a stock high for the stock. 

• As robust growth has already been documented and projected growth is already incorporated, the room will be less: any weakness in the demand, a rise in the cost of inputs (commodities, logistics), or macro headwinds will tear into the performance.

• Cyclicality can be relevant in industries such as engines/generators: e.g., mining tenders being put down can affect industries. 

• Thus, valuation-wise, the beat is reassuring, but investors need to inquire: Has the stock already factored in growth of the future? When yes, then the upside can be constrained until further positive surprises are discovered.

4. In the meantime, FIIs Are Exiting Indian Markets

Although Cummins India is performing well, the larger picture of the foreign institutional investor (FII) flows in India is more threatening. Key facts:

• FIIs have sold Indian equities to the tune of 152 lakh crore in 2025 to date. 

• In other reports, total FII net-selling has hit around 2.40 lakh crore by August 2025
  
• Foreign stakes in large indices have decreased: e.g., in the Nifty 50 FII holdings dropped to about 25 percent in June 2025, compared with about 28 percent in December 2020. 

• Analysts explain the outflows by a number of reasons: high valuations, worldwide monetary tightening, a stronger US dollar, competition of capital by developed markets, and a relative deceleration in the India growth story when compared to those of the rest of the world. 

• They have been replaced by Domestic Institutional Investors (DIIs), but the thing is that foreign flows still have significance in terms of large-cap liquidity and breadth. 

5. Why The FII Selling is Important in the Stock of Cummins India

• Most companies (such as Cummins India) have FY26 forward earnings that are already high. Therefore, in a market where foreign involvement is subsiding, there is a risk of pressure on the valuations in the event that the world sentiment changes.

• Stocks whose growth is heavily dependent on growth can be more exposed in case macro risks crystallize (e.g., inflation of commodities, rise in interest rates, weak currency). In case of skepticism, when the number of participants in the form of the FIIs is low, they increase the risk.

• Though there is a good domestic narrative, a significant portion of the outperformance of the Indian market over the recent years has been maintained by the international flows. FII support will be less than in the past, possibly lowering tailwind and accentuating dependence on domestic flows (which could be more discriminating).

• To investors in firms such as Cummins India, this implies the fundamentals may be able to be held by investors, but the premium to value may not be maintained in a low-foreign-flow regime.

6. So What Do Investors Need to Pay attention to?

Investor checklist when considering investing in Cummins India (and other businesses placed in this environment):

• Earnings trend: Will growth increase at a higher pace or at least continue at the present levels of high digits? Monitor important areas- data-centres, power generation, exports, and industrial demand.

• Margin sustainability: This is the input costs (metals, components, freight) and pricing power. Any margin dip could damage the premium.

• Macro/flow risk: As the FIIs withdraw, any risk in the world (interest rates, currency, or trade war) would affect the Indian equities more.

• Valuation buffer: In case the stock already captures a significant part of the future, then have a buffer.

• Liquidity & shareholding change: Track shareholding and changes in the foreign-domestic flows.

• Raisers/lowers: Upside: Upside could occur should Cummins receive bulky new orders or a margin surprise; downside could occur should there be demand weakness or a reversal of foreign flows.

Conclusion

Cummins India Q2 earnings beat in summary: This is encouraging to Cummins India, as it demonstrates that the company is performing and winning market demand. The context is, however, more delicate when it is observed within the larger stock-market backdrop of massive FII selling. On the one hand, the business would appear to be robust, but on the other hand, the risk of valuation and high dependency on good flows makes investors walk on thin ice. Growth is occurring, but the question is whether the market has already factored it in. Yes, then the margin of error is smaller – and in a world where foreign flows are ebbing back, selective risk management takes center stage.