Q3 Outlook: Modest Growth Expected for Indian Companies
Despite a disappointing second quarter, Indian companies are anticipated to show better performance in Q3 of FY25. Key sectors such as real estate, telecom, and non-banking financial companies are expected to drive this growth.
Indian EconomyQ3 EarningsCorporate PerformanceSectoral OutlookFinancial ResultsReal EstateJan 09, 2025
The earnings season for this quarter comes against the backdrop of a slowing economy, characterized by weak consumer demand and modest increases in investments.
Several key factors are expected to influence the financial results for the three months ending December sales during the festival season, currency depreciation, and a sharp slowdown in loan growth.
Net profits for the Nifty50 companies are projected to grow by 9% year-over-year (y-o-y), on the back of a 4.3% rise in revenues, according to Kotak Institutional Equities (KIE).
For the BSE 30 set of companies, net profits are estimated to increase by 7.2% y-o-y, supported by a 5.7% y-o-y rise in sales.
However, operating profits for both sets of companies are expected to grow at a slower rate than the net profits, indicating that the bottom line would be bolstered by other income sources.
Among the sectors that are expected to report only single-digit net profit growth or a decline are automobiles, banks, cement, consumer staples, and metals.
On the other hand, sectors such as capital goods, pharmaceuticals, real estate, telecom, and non-banking financial companies are predicted to perform well, with high double-digit earnings growth.
The market has seen a muted consumer demand, particularly in urban India, which has left volume growth at FMCG players subdued.
Sales of automobiles have been affected by an inferior product mix and increased discounts in December.
Banks have also seen reduced business activity, as evidenced by slower credit growth.
The software services sector is expected to show only a modest performance; most IT firms should report an acceleration in growth rates year-over-year, but the sequential growth could be lower.
Nonetheless, these numbers should be better than those in FY24.
The top lines of cement manufacturers and metal producers have been impacted by weak realizations.
Conversely, makers of capital goods are believed to have strong order books, and execution during the quarter should have been robust.
Property developers, who have seen an improvement in project launches, are expected to report good numbers.
The average revenue per user (ARPU) at telecom companies is also expected to boost their bottom lines, according to analysts.
In the September 2024 quarter, net profits for a sample of 2,875 companies (excluding banks and financials) were flat y-o-y, with net sales growing at 6% y-o-y.
For a larger universe of 3,323 companies (including banks and financials), net profits rose by 4% y-o-y, driven by a 9% increase in top-line revenue.
Currently, the Nifty is trading at a price-earnings multiple of 19.6 times estimated FY26 earnings and 17.2 times estimated FY27 earnings.
The Sensex, at 78,200, is trading at 19.9 times estimated FY26 earnings and at the same multiple of 17.2 for FY27.
Kotak Institutional Equities (KIE) is a leading financial services company in India, providing a wide range of investment banking, research, and asset management services.
With a strong presence in the capital markets, KIE has a reputation for delivering insightful and actionable investment advice to its clients.
Despite the challenges, the outlook for Q3 FY25 remains cautiously optimistic.
Companies and investors are keeping a close eye on various economic indicators and government policies that could impact the business environment and drive future growth.
Frequently Asked Questions
What is the expected growth in net profits for Nifty50 companies in Q3 FY25?
Net profits for Nifty50 companies are expected to grow by 9% year-over-year (y-o-y), according to Kotak Institutional Equities (KIE).
Which sectors are expected to perform well in Q3 FY25?
Sectors expected to perform well in Q3 FY25 include capital goods, pharmaceuticals, real estate, telecom, and non-banking financial companies, with high double-digit earnings growth.
How have FMCG players been affected by consumer demand in Q3 FY25?
FMCG players have seen a muted consumer demand, particularly in urban India, which has left volume growth subdued.
What impact has the weak realizations had on cement manufacturers and metal producers?
The top lines of cement manufacturers and metal producers have been negatively impacted by weak realizations, affecting their financial performance.
What is the current trading multiple of the Nifty and the Sensex for FY26 and FY27?
The Nifty is trading at a price-earnings multiple of 19.6 for FY26 and 17.2 for FY27. The Sensex, at 78,200, is trading at 19.9 for FY26 and 17.2 for FY27.
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