Short Call | New year, new earnings season but same old story; Premier Energies, Kalyan Jewellers in focus

Short Call

As the calendar flips to 2025, the backdrop for Indian equities remains largely unchanged. After a blazing rally in 2023 and most of 2024, the market finds itself in a cooling-off phase, grappling with a growth hiccup.

India's GDP growth is expected to hit a four-year low in FY25, and Q2 earnings growth crawled at just 4%. With the Q3 earnings season upon us, optimism is tepid at best. High-frequency indicators paint a grim picture for India Inc.

A broad-based slowdown looms large, with the government holding back on capex, banks treading cautiously on unsecured personal loans, and urban consumers feeling the heat of rising prices. While rural consumption shows a glimmer of hope, fueled by a bountiful monsoon, it's not enough to tip the scales.

Amid this slowdown, Q3 earnings growth is expected to remain subdued, though marginally better than Q2. MOFSL forecasts Nifty-50 earnings to grow 6 percent year-on-year, slightly up from Q2's 4 percent. For FY25, an intriguing trend emerges: earnings growth is expected to mirror revenue growth, indicating that topline strength will drive the bottom line. With the story set straight, what should investors do? Turn a blind eye to near-term hiccups and short-term riches to hunt for medium-term growth avenues.

Premier Energies (Rs 1,252.75, -4%)

Shares fell after KIE initiated coverage with a 'sell' call on the stock.

Bull Case: Kotak has forecasted a strong Compounded Annual Growth Rate (CAGR) of 44 percent for Premier Energies between FY24 and FY30. India’s solar sector is poised for exponential growth over the next decade, as the country aims to reach 500 GW of renewable energy capacity by 2030.

Bear Case: The stock's high valuations is a concern, driving the bearish stance, the Kotak report stated. The stock has rallied 50 percent in the past six months. Furthermore, heightened competitive intensity could start impacting margins from 2028.

Kalyan Jewellers (Rs 707.25, -2%)

Shares extended losses to the fourth session amid profit-booking from record high.

Bull Case: Growth prospects for the jewellery maker remains robust. In its quarterly update, the company stated that the December quarter was 'very fulfilling,' with consolidated revenue growth of 39 percent on-year.

Bear Case: Gold prices have seen significant inflation, however, gold price deflation is a key risk, which in turn could impact the business momentum.

(Inputs from Veer and Zoya)