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The Indian market remained within a narrow range in May 2025 despite various domestic and global events impacting it. One key factor contributing to this lacklustre performance is the subdued earnings reported by Corporate India.
A report from Kotak Institutional Equities suggests that the market is stagnating due to high valuations, domestic growth challenges, and global macroeconomic headwinds while remaining hopeful of a recovery in both the economy and corporate earnings.
According to Motilal Oswal Financial Services, this marks the fourth consecutive quarter of single-digit growth for the Nifty 50. In the March 2025 quarter, the Nifty recorded a year-on-year profit after tax (PAT) growth of just 3 percent. This is the first instance of such muted growth occurring for four consecutive quarters since the pandemic began.
Delving deeper into the details reveals that only five Nifty companies—Bharti Airtel, Hindalco, ICICI Bank, Tata Motors, and HDFC Bank—accounted for 137 percent of the year-on-year increase in earnings.
The Kotak report suggests that the numbers for the March quarter do not inspire confidence in an imminent recovery. They believe that many sectors and stocks are overvalued, and the economy is grappling with growth challenges in consumption, investment, and outsourcing. Compounding these issues are global growth and inflationary pressures.
On a more positive note, Motilal Oswal observes that corporate earnings for the March quarter wrapped up on a strong note. Their analysis shows a favourable beat-miss ratio, with 41 percent of companies exceeding earnings estimates while 29 percent fell short at the PAT level. The earnings upgrade-to-downgrade ratio improved to 0.6x compared to the previous quarter, with 63 companies having their earnings upgraded by more than 3 percent while 110 companies saw downgrades of over 3 percent.
In contrast, small-cap companies, totalling 122, underperformed primarily due to poor results in the financial sector. Small-cap earnings dropped by 16 percent year-on-year, with 39 percent of the coverage universe failing to meet their estimates.
While the analyst community's response to earnings has been mixed, Nifty's current valuation aligns with its long-term average. Currently, the Nifty is trading at 20.5 times one-year forward earnings, nearing the upper end of its trading range over the last three years.
Nevertheless, analysts at Nomura believe there is potential for growth, attributed to a favourable earnings yield compared to bond yield, currently at -1.4 percent, which is at the high end of the range observed over the past four years.
Factors such as low oil prices, reduced inflation, and declining interest rates could trigger an upward movement in the Nifty. Nomura assesses that the fair value for the Nifty lies between 18-24 times one-year forward earnings, suggesting a potential upside of 24 percent or a downside of 12 percent from current levels. The research firm has revised its March 2026 Nifty target to 26,140.
The Nifty's current drift is a result of conflicting influences that seem to offset each other. Its future direction will depend largely on how the economy navigates these challenges and responds to the positive factors at play.
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Shishir Asthana
Moneycontrol Pro
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