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.

• Earnings growth is likely to decline due to a high base.

• Overweight on financials, consumer discretionary, industrials and technology.

• For Nifty 50 companies, expect revenue growth of 6%, profit of 1%.

• Leading revenue growth: industrials and utilities.

• Lagging revenue growth: Materials.

• Leading Earnings growth: communication services, consumer Discretionary and financials.

• Lagging Earnings growth: materials and energy.

• Biggest contributors to Sensex earnings: HDFC Bank Ltd., Tata Consultancy Services Ltd., Bharti Airtel Ltd.

• Poorest performer: JSW Steel Ltd.

• Capital goods likely to see highest expansion in margins.

• Auto: Must watch trends after monsoon and the impact of recent commodity price escalations.

• Capital Goods: Must eye the end-user industry ordering trends post-elections and election-driven slowdown to impact Q1.

• Cement: Expect muted year-on-year volume growth trajectory at 1-7% and 2-3% sequentially decline in realisations.

• Staples: Expect gradual sequentially improvement in growth and modest year-on-year margin expansion.

• Discretionary/Retail: Topline growth to be driven by pace of store expansion.

• Energy: For oil marketing companies, Ebitda will decline sharply sequentially on weak refining/marketing margins.

• Financials (Lenders): Varying growth trends across lenders contingent on net interest margins / loan-to-deposit ratio management strategy.

• Financials (Non-Lenders): Expect margin compression for life insurers owing to mix change. Expect strong profit before growth for capital market players.

• IT: Expect -1.5% to +2.3% growth sequentially for the top five players.

• Metals: Estimates a YoY volume growth of 3-6% for steel companies.

• Pharma: Expect mixed 1Q with domestic growth expected to be decent while US sales depend on gRev contribution.