Several companies announced lower-than-expected profits for the September quarter (Q2FY25), which was a negative outcome for Indian Inc. Investor concerns about a possible downturn in the Indian economy were heightened by this lacklustre performance, which led to a steep selloff in the financial markets.
International investors have become more pessimistic about the Indian market as a result of the poor earnings. In recent months, foreign portfolio investors (FPIs) have been aggressively withdrawing their money, indicating a loss of faith in the nation’s potential for economic progress.
Frontline indexes have been forced into correction territory and have been trading at multi-month lows as a result of the combination of disappointing corporate earnings and persistent FPI withdrawals, which have increased market volatility.
Additionally, brokerage firms have reduced their target multiples and profit predictions for most equities, which has caused a significant decline in investor wealth and added another level of market uncertainty.
Nearly half of companies miss estimates.
According to JM Financial’s study of Q2FY25 results, 45% of the companies in its covered universe failed to meet earnings projections.
“We have analysed the results of 227 companies (out of the 275 company JM Financial coverage universe) and come to the conclusion that 45% of companies have missed estimates,” said the brokerage.
Significant underperformance was highlighted in the report in industries like MFIs and Oil Refining & Marketing, where all businesses fell short of expectations. Similar to this, there were a lot of earnings misses in industries like consumer durables, SFBs, auto OEMs, city gas distribution, telecom, building materials, and retail, which reflected larger issues.
However, Steel and Mining, which benefited from favourable raw material prices, and PSU Banks, which benefited from lower credit costs, demonstrated strong outcomes, with more than 70% of businesses exceeding projections. It also noted that the Internet and pharmaceutical industries did well.
For its universe of 275 businesses, the brokerage has also examined target price revisions following results and consensus EPS. It was discovered that 66% of businesses had their EPS downgraded for FY25, with 40% seeing cutbacks greater than 3%, 29% exceeding 5%, and 18% exceeding 10%. Furthermore, 45% of businesses saw their target prices lowered following the QFY25 results.
Particularly impacted were midcap and small-cap companies; EPS losses above 10% were seen by 17% of midcaps and 23% of small caps, while large-cap companies only experienced 10%.
“There is a slowdown in urban demand across FMCG, retail, auto, and mall operators. Besides this, chemicals, consumer durables, and building materials have seen a moderation in demand. MFIs, select private sector banks, and NBFCs are witnessing stress in their unsecured books,” said JM Financial.
