The Q2 earnings season for India Inc has shown signs of weakness, with downgrades outnumbering upgrades. Nifty companies reported a 4 percent on year profit growth in Q2, extending its streak for single-digit bottomline growth to the second successive quarter, a first since the pandemic. Incremental growth was driven by five companies--SBI, Hindalco, ONGC, ICICI Bank, and Axis Bank. However, this was offset by underperformance from BPCL, JSW Steel, Coal India, IndusInd Bank, and Reliance Industries, which dragged overall earnings growth.
Consumption has emerged as a weak spot, while select segments of BFSI are seeing asset-quality stress, brokerage firm Motilal Oswal Financial Services noted. On top of that, the weak government spending along with excess rainfall in the quarter gone by also adversely impacted demand.
"Nifty's FY25 EPS faced another 1 percent downgrade following a 4 percent cut during the 2QFY25 preview. Over the past six months, Nifty EPS has been revised downward by 7 percent, bringing the projected FY25 earnings growth to a mere 5 percent—the weakest since FY20," MOFSL stated.
Post the Q2 earnings season, some remarkable FY25 earnings upgrades came for Bharti Airtel at 16.3 percent, followed by Tata Motors at 11.6 percent, Tech Mahindra at 8.8 percent, and Hindalco at 8.6 percent. Conversely, the top earnings downgrades included BPCL with a steep decline of 34.3 percent, IndusInd Bank at 16.7 percent, UltraTech Cement at 15.5 percent, Asian Paints at 14 percent, and Trent at 12.1 percent, the brokerage said.
Also Read | MOFSL forecasts Q2FY25 to deliver slowest Nifty earnings growth in 17 quarters
On the sectoral front, the banking pack recorded a subdued quarter as private banks faced margin compression and higher provisioning costs, while public sector banks outperformed due to lower-than-expected provisions.
The auto sector saw a revival in rural demand, driven by a healthy monsoon, festive season, and upcoming marriages, benefiting two-wheelers and tractors. On the other hand, consumer demand struggled due to inflation and adverse weather, denting volume growth.
Oil abd gas companies underperformed, with EBITDA and PAT falling below estimates due to OMCs' weak performance, MOFSL highlighted. Information technology services reported healthy revenue growth but maintained a cautious outlook amidst ongoing uncertainties. Healthcare companies delivered better-than-expected EBITDA, supported by growth in chronic therapies, limited competition products, and higher raw material inventory levels, though sales and PAT aligned with MOFSL's estimates.
However, there seems to be light at the end of the tunnel as expectations of a revival in government spending in the second half of the fiscal, along with a good kharif crop and improving rural demand are sparking hopes for a better H2 FY25 for India Inc, MOFSL believes.
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