Estimates done by Motilal Oswal shows that Nifty earnings may grow marginally by just 2% year-on-year in Q2, which would be the lowest in the last 17 quarters as margin tailwinds are likely to ebb due to a high base.
The 2% growth has sparked fears of downgrades as the H1 EPS growth for Nifty could turn out to be just 3% and FY25 to just 7% growth vs consensus expectations of 13% growth.
“We continue to see earnings expectations fatigue and downside to the consensus forecast 15% 2-year EPS growth. As we saw in Q1, we see more misses than beats in Q2, particularly in consumer discretionary, materials and financials,” Macquarie’s Aditya Suresh said.
After the earnings slowdown (4% growth) seen in Q1, this could be the second consecutive quarter of sub-10% YoY profit growth. Since September 2020, Nifty’s PAT rose in double-digits non-stop till the March quarter of FY24.
“What’s more worrisome is the earnings slowdown is now being led by demand—and not external/liquidity shock. Reversing demand would thus need a notable policy response, which is not in the offing for now. Nifty consensus earnings for FY24/25E/26E is Rs 957/1,084/1,250,” Nuvama’s Prateek Parekh said.Also read | Will the stock market crash? Let’s find out using 6-day stress test
Elara Capital said within its coverage universe of 235 stocks, Q2 is going to be the first in seven quarters to see a decline in YoY and QoQ earnings, as domestic cyclicals may struggle to fully offset the persistent drag from commodity sectors.
Brokerages estimate that the margin for Nifty will contract 40 bps at 20%.
The overall earnings growth is anticipated to be primarily driven, once again, by BFSI (+11% YoY), along with Healthcare (15% YoY), Utilities (+24% YoY), and the improved contribution of Telecom YoY (loss reducing to Rs 400 crore in Sep’24 from Rs 4,300 crore in Sep’23), Motilal said.
Conversely, earnings growth is likely to be weighed down by global cyclicals, such as O&G (led by OMCs), which are anticipated to decline 33% YoY, along with metals (+2% YoY), cement (-41% YoY), and auto (+7% YoY).
Meanwhile, real estate (+44% YoY), and retail (+17% YoY) are expected to deliver strong growth, while capital goods (+13% YoY), auto (+7% YoY) and consumers (+4% YoY) are anticipated to post moderate earnings growth, Motilal estimates show.
Unlike FY24, volumes, rather than prices, are leading the topline slowdown.
This combination of slowing earnings and record-high valuations on aggregate (market cap-to-GDP of 150%) and breadth (median trailing PE: 45x) warrants caution, analysts say.
Following sharp increases over the prior 6-12 months, Macquarie said autos have started to see some cuts driven by a moderation of margin expansion expectations.
Materials are also seeing cuts driven by lower margins (cement, steel down Q/Q). Financials are coming off a goldilocks credit environment and starting to see mild cuts, it said. On the other hand, the IT sector has seen mild upgrades over the last 3 months while the healthcare sector has also seen mild increases in both revenue and margin estimates.
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