While the fiscal second quarter earnings season came to a close, brokerage firms said that the Q2 corporate earnings scorecard was weak, but excluding commodities, it has reported an in-line earnings growth. “Consumption has emerged as a weak spot, while select segments of BFSI are experiencing asset quality stress. Weakness in government spending has also been one of the factors driving moderation in earnings. After a flat H1FY25, as the government spending revives in H2FY25, this should augur well for corporate earnings along with a good kharif crop and improving rural demand,” stated a report by Motilal Oswal Financial Services (MOFSL).
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With earnings being primarily driven by cyclical sectors such as automotive, engineering, defense, infrastructure, real estate, and energy in recent years, these sectors experienced significant growth; however, Vipul Bhowar, Senior Director Listed Investments, Waterfield Advisors, said that the current reduction in government expenditure within them has led to a slowdown in earnings. “Managements, during their earnings updates, have indicated that urban consumers are cutting back on spending across various categories, including essentials like food and personal care products, as well as discretionary items due to economic uncertainties and rising costs of living. In conclusion, the notable downgrades in earnings forecasts in India can be attributed to several factors: weak consumer demand, cyclical economic conditions, decreased government spending, and adverse weather. This current downturn is part of a natural economic cycle, rather than a structural issue, and it is expected to improve in the coming quarters,” he added.
Key sectoral performance
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Of the 25 sectors under the coverage of MOFSL, the brokerage firm said that 4 sectors reported profits above estimates, 12 posted profit in line with the estimates and 29 others recorded profits below estimates. Of the 275 companies under coverage, 97 exceeded profit estimates, 104 posted a miss, and 74 were in line, it added.
Another report by JM Financial stated, “Q2FY25 earnings so far have made investors jittery and we have seen stocks of companies reporting weak earnings/ weak outlook correcting.
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