Moneycontrol Pro Panorama | A welcome pause

Benchmark indices have taken a breather amid tensions in the Middle East and fears that US interest rates will remain elevated for a longer period.

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The Nifty 50 index is little changed since the beginning of the current earnings season and is up just 3 percent over its January 1, 2024 level. Benchmark indices have taken a breather amid a flare-up of tensions in the Middle East and also due to fears that US interest rates will remain elevated for a longer period.

Importantly, the benchmark index is receiving lacklustre support from earnings. Halfway through the results season, the Nifty has seen no noticeable earnings upgrades. Aggregate earnings estimates of Nifty 50 companies are unchanged. “The lack of earnings buoyancy in Q4 FY24 has resulted in a limited earnings upgrade in recent months,” Kotak Institutional Equities said in an update.

Aggregate net profits of 28 Nifty companies that have released their results till now have exceeded analyst estimates. Even so, aggregate figures mask the inconsistencies among index constituents.

Select companies have contributed disproportionately to Nifty earnings growth, namely—HDFC Bank, Coal India, ICICI Bank, Maruti Suzuki and TCS. “These five companies contributed 75 percent to the incremental year-on-year accretion in earnings,” Motilal Oswal Financial Services said in a note.

Of the five companies, a significant rise in Coal India’s profits is attributed to an accounting change. Adjusted for contribution from Coal India, the aggregate earnings growth will be slower.

The patchy performance is reflecting in changes to earnings estimates.

Of the Nifty firms that have released results so far, earnings estimates of only two companies have been revised upwards by more than 3 percent by Motilal Oswal. Coal India is one of them. In comparison, the FY25 earnings estimates of seven companies have been revised downwards by more than 3 percent. Earnings estimates of companies in IT, insurance and select consumer goods, financial services sectors have been revised lower.

The Nifty 50 index has begun to reflect the concerns. Still, valuations are far from reasonable. Our research team's Sachin Pal raises pertinent questions in this piece and warns that earnings-led disappointment could weigh on market sentiments. “In our view, the election results (Modi 3.0 or even a mild negative surprise) may turn out to be the pivotal moment for the Indian markets, which could trigger a long overdue profit-booking across sectors,” he adds.  

Investing insights from our research team

CSB Bank’s subdued show in Q4 is just a blip

Hindalco Q4: Strong operating performance by Novelis

Britannia Industries: Execution of volume growth guidance remains crucial

Mahindra Finance: Muted earnings due to one-off provision

Tracker

Pro Economic Tracker | Active workforce slows sharply, power consumption hits 7-month high

What else are we reading?

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Why virtual influencers are a hot property among brands

A new US-Saudi deal could change power equations in the Middle East

Long-term reforms a must to set right onion economy

Xi is probing for cracks in the EU and NATO (republished from the FT)

RSS doesn’t conduct any poll surveys, too busy to indulge in electioneering

Bank of England should tailgate the ECB, not the Fed

Behind the Hong Kong market’s fast and mysterious rally

Personal Finance

When will interest rates start to fall? 

Technical Picks: TCS, Dr Reddy’s Laboratories, TCS, Jubilant Foods and
Gold mini (These are published every trading day before markets open and can be read on the app).

R Sree Ram
Moneycontrol Pro