Short call | Can Q2 results justify markets' record-breaking rally? PB Fintech, Amara Raja in focus

All eyes are on India Inc’s Q2 scorecard

Last week, Indian frontline indices hit record highs every day, fueled by the US Fed's outsized rate cut, which redirected foreign investor flows towards Asian markets—especially India. While some profit-booking crept in on the week's final day, Nifty still managed its third straight weekly gain. With this streak of record runs, markets are now overheated, and to keep foreign inflows coming, valuations will need solid justification—either through growth or earnings.

As we head into October, India Inc is set to report its second-quarter results. Analysts are anticipating a sequential rebound after a dismal Q1, where profit performance hit its weakest since the pandemic. Earnings downgrades were the highest in four years, but market watchers see Q1 as a temporary blip. The worst, they say, is behind us. With favorable monsoon progress, recovering rural demand, easing raw material costs, and cooling inflation, corporate profits are expected to see a lift.

Accenture’s upgraded revenue guidance for FY25 (3-6 percent in constant currency) offered a glimmer of hope for India’s struggling IT sector. After several sluggish quarters plagued by macro uncertainties and weak discretionary spending, Accenture’s modest Q4 results and improved outlook have set a more optimistic tone for Indian IT companies. Brokerages are seeing the rebound in consulting revenues as a signal that discretionary spending may be turning a corner, and a revival could be on the horizon.

"While a full recovery in discretionary demand might take a few quarters, it’s unlikely to get worse," noted analysts at Nomura. Nuvama echoed this sentiment, viewing it as a vote of confidence in the earnings potential of IT services.

Now, all eyes are on India Inc’s Q2 scorecard. With Indian markets surfacing as the most expensive globally, future performance depends heavily on how corporate profits shape up.

PB Fintech (Rs 1,638, -3.3%)

Down for the fifth session since announcing plans of healthcare foray

Bull case: Strong business momentum for its core business banked on the company's dominance in the online insurance space, notes BoFA. CLSA also estimates the company achieving its target of Rs 1,000 crore in net profit by FY26, earlier than its guidance of doing so by FY27.

Bear case: Lack of clarity over plans to venture into healthcare space may act as an overhang on the stock. Stock performance to be highly dependent on details of the new venture - quantum of capex outlay, solo entry or with partners, among other concerns, Morgan Stanley remarked.

Amara Raja Energy & Mobility (Rs 1,392, +4.6%)

In an analyst meet, the management emphasised need for focused cell manufacturing to achieve 10-11 percent margins at 85-90 percent capacity utilisation, with a committed Rs 9,500 crore capex over 10 years.

Bull Case: Is focusing on building in-house R&D capabilities for lithium-ion batteries, reducing reliance on external partners. Commissioned a 1.5 GWh battery pack plant in 2024, with plans for further expansion. Partnered with Gotion Hi-tech to access advanced Lithium Iron Phosphate (LFP) battery technology, improving its technology portfolio.

Bear Case: The lead-acid business, while steady, is at risk as the market transitions to lithium-ion technology. Dependence on external technology partners poses additional risks. Valuations are seen as expensive, trading at a 46 percent premium compared to larger global players like CATL and LG Chem, as per Kotak.

(with inputs from Vaibhavi and Neeshita)