Cautiously Optimistic Outlook
This growth is over the high base of the year-earlier 36.2% expansion.
Revenue is likely to grow in double digits-after a gap of four quarters-by 10.6% compared to 6.9% increase in the year-ago period.
“The earnings growth is expected to be driven by domestic cyclicals, such as banking, finance and insurance companies and automobiles, with improved contribution of metals and healthcare,” said Gautam Duggad, institutional research head, Motilal Oswal Financial Services.
According to Deepak Jasani, retail research head, HDFC Securities, revenue may show a higher improvement due to the lower year-ago base whereas profit may remain muted, given the strong growth a year earlier.
At 20.6%, operating margin is likely to remain above 20% for the second consecutive quarter. It may shrink by 10 basis points from the year-ago period while showing a 30 basis point sequential improvement. “Margins may broadly remain flat with some sectors including metals, auto, defence, and power reporting better times,” said Jasani. A basis point is 0.01 percentage point.
Duggad expects 11 out of 17 major sectors under coverage to show a year-on-year expansion in margin.
Analysts remain positive about future prospects while highlighting geopolitical concerns.
“Outlook for the subsequent quarter remains cautiously optimistic with the new government in place, monsoon setting in across the country and businesses preparing for the festival season,” said Jasani.
Duggad remains positive on the markets, given the improving macroeconomic conditions, healthy corporate earnings, moderate inflation print, and ongoing policy momentum. “However, geopolitical developments and slow growth in domestic consumption will be the key near-term challenges,” he said. He expects Nifty 50 earnings per share (EPS) to grow by 13% and 17% in FY25 and FY26, respectively.
Sector outlook
Automobiles: Despite slower sales volume growth in the June quarter, automobile companies are likely to report strong numbers helped by higher realisations and lower input costs. Maruti Suzuki’s domestic volume grew 3.8% year-on-year during the quarter while Tata Motors reported a 1.3% decline in passenger car volume. Two-wheeler manufacturers recorded volume growth ranging from 7% to 17%, barring Eicher Motors, which reported a marginal 0.4% drop.
Banking and finance: While credit growth remained healthy during the quarter, deposit growth slowed. Slippages may inch up given the stress from agriculture-related credit. Net interest margins are expected to remain under pressure due to a sustained increase in deposit rates. Despite odds, large banks and finance companies may continue to report double-digit revenue and profit growth.
Cement: The heat wave and shortage of labour in some states hit construction activities in the June quarter, thereby eroding cement demand. The all-India average cement price fell by 3% to Rs 348 per 50 kg bag during the quarter. Large-sized companies focused more on volume growth, which did not provide much scope for price increases. Large cement firms are likely to post 5-8% year-on-year growth in sales volume. Revenues of Ultratech Cement, ACC, Ambuja Cements, Shree Cements and Dalmia Bharat may either fall or increase marginally while their net profits may grow 6-7% in the quarter.
FMCG: Fast-moving consumer goods companies are expected to post mixed growth in the June quarter amid heatwave conditions, general elections and sustained inflation. In the backdrop of overall weak consumer sentiment, rural consumption is estimated to have improved marginally during the quarter and quick commerce may support urban consumption.
Information technology: IT exporters are likely to continue to show pressure on the top line due to slower project ramp-ups and delay in decision making by clients. Top companies are likely to report single-digit year-on-year revenue growth in rupee terms. Companies including TCS that have raised salaries are likely to report a contraction in the operating margin. For other companies, the margin may improve by 50-100 basis points.
Oil and gas: Stable oil prices are expected to support upstream companies while expected lower inventory losses may help downstream companies. The performance of Reliance Industries is expected to be driven by consumer-focused segments whereas the oil-to-chemicals segment may experience moderation in operating profit due to a sequential drop in gross refining margins. But, subscriber additions and an increase in average revenue per user in the telecom business are expected to boost earnings.