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:
- Increased Government Spending: Post-election spending is expected to accelerate projects.
- Improved Global Sentiment: Stable geopolitical conditions and easing inflationary pressures.
- 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.