June-Quarter Earnings May Be Muted Due To High Base Effect, Say Analysts

Indian companies may report muted earnings for the first quarter of the current financial year given the high base, even as most domestic-focused sectors deliver positive revenue growth, according to brokerages.

Earnings growth is likely to decline in the first quarter of fiscal 2025 from a high base, even while remaining in the earnings upcycle, Morgan Stanley said in a July 9 note. Growth momentum looks intact, and margins look set to expand for the sixth quarter running, the note said. "Our analysts expect Q1 FY25 revenue and net profit growth of 6% and 7%, respectively, for Sensex Index (companies)."

While avoiding externally facing sectors, the brokerage is 'overweight' on financials, consumer discretionary, industrials, and technology.

The domestic sectors are set to outperform, as nine out of 10 sectors are expected to deliver positive revenue growth, with industrials and utilities leading the pack while materials lag, Morgan Stanley said.

Citi Research anticipates over 2% and flattish year-on-year earnings growth for the Nifty and Citi Universe, respectively. Excluding energy stocks, the Nifty and Citi Universe are expected to report 8% and 14% year-on-year earnings and 7% and 9% year-on-year Ebitda growth, respectively.

In fiscal 2024, earnings surprised expectations meaningfully in all four quarters, Citi said. Both Citi and the consensus project Nifty's earnings per share to grow at compound annual growth rates of 12% and 13% in the fiscal 2024–2026 period. The earnings revision trend remains modestly positive, the brokerage noted.

Markets will also focus on budget announcements, monsoon trends, and management commentary on consumption trends, Citi said. With strong domestic flows, the trends remain strong, and after the year-to-date returns of 12%, the market might consolidate a bit.

"We would buy any dips. Our Nifty target for June 25 is 24,400," Citi said.