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That Indian equities are in a correction mode is now a given. Barring a brief euphoric rise soon after Donald Trump’s sweeping victory in the US presidential elections, Indian stock prices have been sliding on the back of selling pressure. The Nifty 50, the BSE Sensex and the Nifty 100 are down about 8-10 percent from their all-time peak levels of September-end!
To be sure, it appears that slowing domestic economic growth is beginning to stoke fears along with sticky, elevated inflation. Mirroring this and perhaps, more relevant to equity investors is the visible slowdown in corporate earnings. The first quarter (Q1 FY25) went by with flat growth in majority of the listed firms explained as a “blip” due to elections and extreme heat conditions. However, it appears that the second quarter (Q2) is marked with earnings misses.
In its recent report aptly titled: India Strategy: Let’s acknowledge the slowdown, equity research firm Sanford Bernstein points out that the earnings miss in the second quarter is secular, save for banking and IT. Of the over 65 percent of NSE100 (Nifty + Next 50) firms that have reported numbers, 48 percent have seen a miss greater than 4 percent in earnings growth, the highest since March 2020! Echoing similar woes, a Motilal Oswal Financial Services report specifically states that the earnings spread deteriorated in Q2 FY25, with the earnings growth of the 166 companies in its coverage universe, declining by 8 per cent year-on-year, which is the lowest in 17 quarters. The disappointment has been across sectors, except IT and banks.
Indeed, equity markets work on forecasts and future expectations. With India still being acclaimed as the world’s fastest growing economy, the hope of a brighter future was driving equity market valuations.
The moot question: Is this hope of earnings catching up in the second half of FY25, waning? As the Bernstein report says, “this promise of a more fantastic future seems to have worked (to drive market rally), putting a more significant burden of performance in H2 FY2025.” As investors begin to see the reality of missed earnings and a broad-based slowdown, stock prices have started to decline. Valuations are coming off too. The Bloomberg’s Nifty 50 price-to-earnings ratio (PE) for one-year forward earnings fell from 23 to 20 and that of the Nifty 100 fell from 25 to 21 between September-end and today.
Dive deep into corporate narratives and results, and the following trends come clear. Auto demand is surely dented and retail sales are witnessing a marked slowdown across vehicle categories. Utilities, cement, infrastructure and core sectors are portraying demand weakness. Most importantly, urban demand that was vibrant thus far in the recovery from COVID, is now stuttering in discretionary spends. Rural demand is looking up, but it is unlikely to offset the urban slack.
Underscoring similar concerns, the recent minutes of the Reserve Bank of India’s Monetary Policy Committee meet pointed to moderation in business sentiment and a slight worsening of economic conditions.
All these India and earnings' specific factors are happening against the backdrop of growing geopolitical risks and uncertainties. There could be more clarity after Trump spells out policy decisions on trade relations, tariffs, rates and the US fiscal deficit.
While this has not reduced domestic investors' flows into mutual funds, it is time investors braced for some more correction ahead.
An interesting aside from Financial Times: Bitcoin’s big bang moment is impossible to ignore (free only for MCPro subscribers).
Investing insights from our research team
Will the robust BSE Q2 earnings translate into further stock upside?
Safari Industries – Why the stock is a good addition in a volatile market
Eicher Q2 numbers muted, premium segment to continue doing well
PG Electroplast Q2 – Outperformance continues
Cello World set to pen a stronger growth script in H2
What else are we reading?
Banks are de-risking their loan book, but not all risky loans are slowing
Trump’s hardline tariff pitch can spell dilemmas for emerging markets
We need a Department of Government Efficiency (DOGE) in India too
ABB India: Change in order flow mix a boon or bane?
Chart of the Day | Q2 road tenders rise, but power sector shines in project awards
Startup Street: Are India, its startups in danger of missing the AI bus?
How markets might be wrong about Donald Trump (republished from the FT)
China trade war is one Donald Trump doesn’t have to fight
How to get the timing right for an IPO? An insider’s guide
India’s Global Bond Gamble: Unlocking the power of FAR and the currency tightrope
Anti-Tobacco Warnings in OTT Streaming: Can India find the balance?
Trump Tariffs: The wealthy will shield Asian banks
Trumpism has not killed wokeism – yet
Tech and Startups
Slice merger with NESFB comes with a cost: Legacy NPAs worth Rs 192 crore
Technical Picks: JIOFIN, MFSL, NIFTYBEES, BHARATFORG
Vatsala Kamat
Moneycontrol Pro
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