Profit, Top-Line Growth Converged In Q1 But Downside Risks To Linger: Nuvama's Prateek Parekh

Corporate India's profit growth converged with the rise in revenue in the first quarter of financial year 2025. The trend will continue in the near-term which will present downside risks to earnings this fiscal, according to Prateek Parekh, director of equity strategy, Nuvama Institutional Equities Ltd.

"In the first quarter, we have seen a lot more homogeneity in variables where topline and profit growth has reconciled. We expect this to continue," Parekh told NDTV Profit.

Topline and profit of BSE 500 firms (except oil marketing companies) rose 8-10% in the April-June quarter, unlike in fiscal 2024 when PAT growth of 21% far outpaced revenue growth of 8%, according to a recent report by Nuvama. It attributed the trend to fading tailwinds from lower input prices and credit costs while demand remained weak.

Revenue growth will be the key monitoring variable that will dictate the earnings outlook for the rest of the year, Parekh said. India's post-Covid earnings has been driven by operational efficiency, he noted.

Profit growth will now depend on demand, of which the outlook is poor. Despite inflation easing, revenue did not inch higher and remained confined in single digit for the fifth straight quarter, he said.

"For FY25, there are more downside risks to earnings. It will be a challenging year as operational efficiency has been extracted and demand remains subpar."

Nuvama anticipates a sectoral churn, with last year's laggards like consumer, private banks, insurance, and information technology likely to lead, while cyclical outperformers like auto, metals, PSUs and industrials are likely to lag.

"The negative surprises of the best performers of fiscal 2024 has begun, while those for laggards like FMCG and IT has bottomed out," Parekh said.