Daily Voice: Q4 FY25 earnings set to outshine Q3 on stronger indicators: Axis' Naveen Kulkarni

Naveen Kulkarni is the Chief Investment Officer at Axis Securities PMS

Naveen Kulkarni, the chief investment officer at Axis Securities PMS, said in an interview with Moneycontrol that the Q3 FY25 earnings report met expectations, following a disappointing Q2 FY25, indicating a sequential improvement.

According to him, Q4 FY25 is expected to perform better than Q3 FY25, particularly as some high-frequency indicators, such as GST collections, have shown improvement.

He believes mid-cap stocks may not experience significant declines from here, but small-cap stocks could face downward pressure.

After reading the Q3 earnings report and listening to management's commentary, do you foresee a growth revival only in FY26 and not in Q4FY25?

The Q3 FY25 earnings report met expectations, following a disappointing Q2 FY25, indicating a sequential improvement. We have noticed similar progress in our holdings and management's commentary. In this context, Q4 FY25 is expected to perform better than Q3 FY25, particularly as some high-frequency indicators, such as GST collections, have shown improvement.

Therefore, FY26 is anticipated to be significantly better than FY25, with visible improvements also expected in Q4 FY25.

Do you expect the earnings growth estimates to be cut further in Q4 as well?

Earnings estimates for small caps have seen a reduction post Q3 FY25 results, as there have been quite a few misses; however, the large and mid-cap space has remained stable. Thus, while there has been a marginal cut in estimates for earnings post Q2 FY25, which was led by sectors like metals, we do not envisage any serious dent to the earnings trajectory from here on.

What is the biggest challenge in India? Is it excessively tight liquidity?

Liquidity conditions have been quite tight, but they are likely to improve in the upcoming quarters. The RBI's interventions and an increase in government spending will be key factors in this improvement.

Do you see further downside in midcaps and smallcaps from here? Additionally, do you foresee single-digit returns from the market in 2025?

Mid-cap stocks may not experience significant declines, but small-cap stocks could face downward pressure, when liquidity dries up in this space, stock prices continue to fall due to low liquidity. However, the sector can rebound sharply when the market stabilizes. Thus, technical factors could lead to some degree of downside, but it may not be significant.

Are you worried about Trump's policy decisions?

In the short term, this may be a concern; however, over the medium to long term, it is not a serious issue. Markets have a way of adapting to challenges. We saw this happen during the sanctions imposed on Russia and the unrest in the Middle East. Eventually, the market stabilizes, and conditions improve.

Which sectors do you currently have a bearish view on?

With the recent market correction, most sectors are now trading in line with their long-term valuations. The commodities space is still a bit jittery, while the infrastructure sector is expected to recover, as there have been challenges due to government spending. Overall, many sectors offer attractive valuations; however, near-term returns will largely depend on stock selection.