With the end of the fiscal second quarter results season, brokerage firms stated that Q2 corporate earnings scorecard was weak, but excluding commodities, it reported an in-line growth. Consumption, per analysis by Motilal Oswal Financial Services (MOFSL), has emerged as a weak spot, while select segments of BFSI are experiencing asset-quality stress. “Weak government spending (flat in H1FY25 YoY), along with excess rainfall, also hurt demand. As some of these factors self-correct in H2FY25, we anticipate a recovery in corporate earnings going forward,” it said.
Further, moving deeper in Q3, JM Financial said, the key pockets of weakness are consumer staples, consumer discretionary, smaller private sector banks, vehicle financiers, MFI and microfinance heavy NBFCs, Insurance, IT Services, Auto ER&D, CGD and Building Materials. The key pockets of strength, it added, are in PSU banks, Housing Finance, 2W/ Tractors, Metals, Textiles, Internet and Wires & Cables.
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Here is an analysis of Q2 performance across sectors:
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Consumer staples: Per the analysis by JM Financial, Q2 was weaker than expected for the consumer staples segment as volume growth was tepid and higher input costs impacted earnings growth. Managements remain cautious highlighting an urban slowdown and gradual recovery in rural areas. The demand environment was challenging during the period due to adverse weather conditions, including floods, heavy rains in certain areas, coupled with persistent inflation that hurt urban demand. “Demand trends in Q3 so far are not showing any signs of marked improvement. Volume trajectory is unlikely to see material uptick in H2. However, price hikes should support higher revenue growth v/s H1. Margin pressures are likely to sustain, for foods and soap players due to sharp inflation in palm oil and edible oils; and higher competition,” the report stated.
Consumer discretionary: JM Financial said that the second quarter was weaker for the larger set of consumer discretionary companies,
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