Muted Q3FY25 Earnings Expected for Indian Corporates Amid Cyclical Slowdown

Indian corporates have faced subdued earnings in FY25, with Q2 results underwhelming investors and triggering a market correction. Analysts predict Q3 will continue this trend, with only marginal improvements in certain sectors.


Key Observations

1. Weak Q2 Sets the Stage for Q3

  • Underperformance: 45% of companies within JM Financial’s coverage missed earnings estimates in Q2.
  • Cyclical Slowdown: A combination of muted government spending and economic deceleration has dampened corporate earnings.

2. Sector-Wise Expectations

  • Positive Outlook:
    • BFSI: Boosted by steady credit growth and improving asset quality.
    • Export-Oriented Businesses: Benefiting from a strong dollar and favorable rupee movement.
    • Agrochemicals, PSU Banks, OMCs, Consumer Durables, and Retail: Expected to show strong operating profit growth.
    • Lifestyle Sectors: Hotels, travel, and consumer discretionary are projected to post robust growth.
  • Lagging Sectors:
    • Cement, FMCG, Paints, and Private Banks: Anticipated to struggle due to higher input costs and weaker demand.
    • Infrastructure: Margins under pressure amid slower project execution.

Expert Insights

Muted Q3 Expectations

  • Ajit Mishra of Religare Broking expects Q3 to remain subdued, with notable improvements deferred to Q4.
  • Vaibhav Porwal from Dezerv sees pressure on profit margins persisting into Q3 but remains optimistic about BFSI and export sectors.
  • Pawan Parakh of Geojit Financial Services highlights the impact of muted government spending due to state and central elections.

Potential Bright Spots

  • IT Sector: According to Parakh, a recovery in IT spending, aided by geopolitical stability, could lead to earnings upgrades.
  • Value Fashion & Retail: Strong demand continues to outperform expectations.
  • Wedding Season Boost: Mythili Balakrishnan anticipates earnings acceleration for liquor, hospitality, and other sectors benefiting from a strong wedding season.

Earnings Growth Forecasts for Nifty 50 (Excluding Key Sectors)

Antique Stock Broking projects YoY growth for Q3FY25:

  • Revenue: 10%
  • EBITDA: 8%
  • PAT: 6%
    Margins are expected to remain flat at 20.4%.

Outlook for Q4FY25 and Beyond

Analysts emphasize that Q4FY25 could mark the beginning of a recovery, driven by:

  1. Increased Government Spending: Post-election spending is expected to accelerate projects.
  2. Improved Global Sentiment: Stable geopolitical conditions and easing inflationary pressures.
  3. Operating Leverage in IT and Retail: Companies benefiting from past investments could see a rebound.

While Q3FY25 earnings may not deliver fireworks, commentary on future outlooks will be crucial in shaping market sentiment. Investors are advised to focus on long-term plays in BFSI, IT, and export-driven businesses while tempering expectations for Q3 results.

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