Moneycontrol Pro Panorama | Q1 FY2025 results: Will the party on the Street continue?

The curtains have just risen on the June quarter (Q1 FY2025) results.

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

The curtains have just risen on the June quarter (Q1 FY2025) results. Investors must brace for a chequered performance from various pockets of the market. With some hits and some misses, the quarter might warrant some moderation in investor expectations of the earnings growth for the full year ahead.

Broadly, the consensus among brokerages is that domestic cyclicals will be the key driver of earnings. No debating this, but it is interesting to note how the macro factors played out differently for different sectors.

Discretionary consumption drove the auto sector sales, although the best performers may be two-wheeler companies that gained from the low base in the year-ago quarter. A report from Motilal Oswal Financial Services states that the auto sector’s earnings will likely rise by 18 per cent year-on-year (YoY) -- the lowest in nine quarters, but among the best performers. 

Another factor was the extreme weather conditions and a torrid summer that drove revenues of consumer goods (air conditioners, refrigerators) and fast-moving consumer goods. “The summer portfolio, including cold beverages, prickly heat powder, and glucose, should do well due to extreme heat in North and Central India," says a report by Elara Securities India.

Indeed, the benefits of crowding in of private sector capital expenditure, driven by strong government capex in the past few years, are slowly but surely reflecting in earnings growth of capital goods firms. Expect some surprise earnings growth from global capital goods companies with robust earnings traction (about 40-45 per cent YoY).

However, some sectors could be laggards. For instance, the same extreme heat conditions impacted infrastructure activity. This, in turn, dragged cement sales and put pressure on cement prices. Revenue and earnings expansion, therefore, may hit a road bump for cement manufacturers.

Banks, barring some large leaders, may post narrowing margins in spite of stable loan growth. Oil marketing companies may have little to boast of, in terms of refining margins. Again, while the IT companies may present a dull quarter, it couldn’t get worse hereon. The challenge, though, is to spot winners who are adapting to changes related to the world of Artificial Intelligence.

Investors must be aware that the earnings party cannot go on forever. After a strong recovery from the pandemic that drove earnings growth on a low base, Q1 FY2025 may be the time to shift into the slow lane. Expect some cautious narratives from the company managements, too. Some analysts suggest it is time to shift from cyclicals to defensives, at least for some part of the portfolio.

In fact, Q1 earnings’ growth forecast for Nifty 50 is a meagre 5-6 percent YoY. This should set the trend for earnings growth moderation in FY2025. As the Motilal Oswal report puts it, after the 20-23 per cent CAGR in Nifty 50 earnings growth between FY2020 and FY2024, the years ahead will see some moderation.

One must not get carried away by a rise in Nifty 50 and BSE Sensex indices. “The broader market may see some time correction in certain pockets in the near term (as small and midcaps correct) and flows will likely shift to largecaps,” says a report by Axis Securities, which could see indices move higher. Importantly, after the 10 percent year-till-date rally in the Nifty 50, it trades at about 20 times the 12-month forward price-to-earnings ratio.

That said, the market may be volatile in the run-up to the Union Budget (on 23rd July), which would also impact the market sentiment as it would set the policy trend for the next five years. Any near-term disappointments could puncture the current euphoria on the Street.

Investing insights from our research team

Indian equities: Will FII inflows get stronger with US rate cuts looking imminent?

This is the best stock to play robust inflows into mutual funds

Balaji Amines: Has the stock bottomed out?

KNR Constructions: New order wins to drive re-rating

What else are we reading?

Five management lessons for aspiring fintechs from Paytm Bank fiasco

Decoding Economics: The importance of government subsidies for semiconductor manufacturing

Union Budget 2024: Road map for the agrarian sector likely to go beyond it

Budget 2024 — How to navigate the energy crisis

Budget Snapshot: Sustained government expenditure could aid cement sales growth

KIMS should see results from Vizag hospital acquisition early

India must assess industry-specific decarbonisation costs urgently

NATO’s difficult 75th birthday (republished from the FT)

Budget 2024: Time to introduce technology to reduce tax litigation disputes

Film making and advertising with Generative AI

Who will lead France out of this mess? Nobody

UK rapprochement with the EU looks as far away as ever

Markets

Only 14% of Rs 80k crore raised in IPOs in last 15 months allocated for growth capital: Axis AMC

Tech and Startups

Dedicated teams working with AI to thwart suspicious transactions, says Google Pay

Personal Finance

Edelweiss MF launches business cycle fund based on factor investing. Will it work?

Technical Picks: HCL Technologies, Bank Nifty and Marksans (These are published every trading day before markets open and can be read on the app)

Vatsala Kamat
Moneycontrol Pro