Q2 earnings: No relief yet but will turnaround come soon?

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26 Aug, 2025 12:21

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Moneycontrol Bureau

The Narendra Modi-led government had barely completed a month in office yet the street was eyeing a clear turnaround in earnings for the July-September quarter. Market was betting on improved sentiment translating into demand and leading to an uptick in the investment cycle.

There are signs of a recovery, but so far it has been uneven and much slower than what the market was expecting. Aggregate earnings growth for the quarter ended September continued to be tepid, with costs savings and lower input prices boosting bottomline even as demand was slack.

According to data by brokerage house Barclays, the overall EPS ‘beats’ (company reporting earnings ahead of analyst estimates) tally of 38 percent (down from 44 percent last week), coming in lower than the average of 44 percent since Q1 FY12.

Materials and telecom sectors reported the strongest performance with almost 67 percent companies beating consensus estimates. Sales ‘beats’ and EBITDA ‘beats’ stood at 30 percent and around 37 percent respectively in the quarter, the Barclays report said.

The growth of larger companies remained slow in Q2, while midcap companies like Bharat Forge and Eicher Motors outperformed market expectations.

A report by Bank of America Merrill Lynch said the pace of growth was slowest in five years with quarterly results disappointing growth by 8.1 percent, falling below estimates of around 12 percent growth.

However, the miss was led by a few companies like Tata Motors and industrials. The silver lining was that the number of companies that surprised in the wider BofAML universe was higher than those which disappointed.

“The quarterly results are a reminder that the earnings and economic recovery are going to take longer than what the market would like. We think earnings will double over next 4 years but we expect earnings upgrade will start only from late CY2015,” the report added.

Banks and consumers, however, drove earning season for Q2 with Sensex heavyweights like ICICI Bank, State Bank of India, HDFC Bank, ITC and Maruti leading the growth trajectory.

The two sectors are expected to continue their strong performance with the retail inflation for October easing to all-time low of 5.52 percent and headline inflation falling to multi-year low of 1.77 percent.  According to investment bank JP Morgan the aggregate adjusted Q2 earnings for the Sensex companies increased 4 percent year-on-year, missing the estimate of 7 percent growth.

“Excluding the energy sector, growth at 9 percent was also lower-than-our expectations of 12 percent. The breadth was disappointing too. The extent of disappointment was higher in industrials, materials, consumer discretionary and health care sectors,” highlighted JPMorgan.  The earnings season reflects the sustained challenging operating environment for Indian companies, despite the improvement in sentiment. However, consensus now estimates Sensex earnings growth of 14 percent and 18 percent for FY15 and FY16, respectively.

JPMorgan continues to recommend participating in the forecast economic recovery through high quality financials, commercial vehicles and materials. The bank remains wary of highly leveraged companies particularly in the investment cycle space. It also maintains its overweight rating on IT services and healthcare.

The report believes equity markets stayed well supported throughout the disappointing earnings season with a substantial fall in global crude oil prices and expectations of reforms in the Winter and Budget sessions of Parliament being key drivers. These factors will have to stay supportive as a pick up in growth will likely take some time, it added.Posted by: Anjali Agarwal