The June quarter earnings (Q1FY2025) saw a moderation in earnings growth. The number of companies that missed analysts’ estimates were more than those who beat them. This is not good news for investors, especially since it comes soon after stellar earnings growth during FY2024.
In its earnings review, Motilal Oswal Financial Services pointed out that of the 263 companies under its coverage, 77 exceeded estimates, 113 posted a miss, and 73 were in line on the PAT front. Importantly, the earnings upgrade/downgrade ratio is at 0.4, which according to the trading and investment brokerage firm, “is the worst since Q1FY2021” (See chart). Detailing this further, it said that “only 46 companies’ earnings were upgraded by >3 per cent, while 107 companies’ earnings have been downgraded by >3 per cent.”
The quarter was marked by pressure on profitability because of lower rate of volume expansion and volatile input costs. Nifty basket of companies reported single-digit operating profit on the high base of the year-ago period. "A low single-digit expansion of 4 per cent year-on-year was clocked for the first time after the pandemic quarter (June 2020" says the Motilal Oswal report
Anticipating lower top-line (sales growth) in FY2025 compared to the last two fiscals, some brokerages have cut the earnings per share estimate for Nifty 50, albeit marginally. While oil and gas could be a drag on earnings, sectors such as industrials, real estate and consumer discretionary sectors seem to be the preferred themes for investment across several brokerages.
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