Brokerages snip Nifty EPS growth estimates after disappointing Q2

Further revisions for FY25, FY26 likely if Q2 show continues to disappoint

Analysts are scaling back earnings growth projections for Nifty 50 companies as the September 2024 quarter (2QFY25) results season fell short of expectations.

 

The consensus earnings per share (EPS) growth forecast for the Nifty 50 has been slashed from 10 per cent to a modest 2.5 per cent, with analysts now predicting that index firms will close FY25 with an EPS of Rs 1,000, marginally up from FY24’s Rs 977. Just a month prior, the consensus FY25 EPS estimate was near Rs 1,100.

 

Following the latest earnings season, FY26 EPS forecasts have also dropped, currently at Rs 1,143 compared to the previous estimate of Rs 1,244, though projections vary across brokerages.

 

So far, of the 27 Nifty companies that have come out with their Q2 results, 14 have missed estimates on both revenue and profit metrics. 

 

“The weaker-than-expected 2QFY25 results, coupled with weak management commentary and guidance in the consumption-oriented sectors, have resulted in modest earnings downgrades in Nifty 50 index stocks, as well as the broader consumption basket,” noted Sanjeev Prasad, Anindya Bhowmik, and Sunita Baldawa, equity strategists at Kotak Institutional Equities, in a report dated October 27.  “As a result, we currently expect 5 per cent and 17 per cent growth in net profits of the Nifty 50 index in FY25 and FY26 (respectively). Interestingly, the markets have started to respond to earnings misses, contrary to previous quarters, suggesting a gradual reversion to fundamentals and valuations.”

 

While the Nifty 50 index has dropped over 5 per cent this month, individual stocks have seen a varied response based on earnings performance.

 

Over the past two quarters, companies in the utilities, industrials, pharmaceutical and telecom space witnessed EPS upgrades, while auto, FMCG and IT stocks saw cuts in earnings estimates.

 

 “Taking into account the Nifty 50 EPS cut in recent weeks and factoring in the slower-than-expected economic recovery in our probabilities, we have cut the blended Nifty 50 target by 3 per cent to 25,978. The rich MSCI India valuation to peers and Nifty Midcap make earnings disappointment to reflect in a sharp stock price correction. We turn cautious on the markets in the short term, as the Nifty 50 earnings ask rate in the second half of FY25 is large versus the first half delivery,” said Pramod Amthe, head of institutional equity research, InCred Equities, in a note last week.

 

Further EPS downgrades could follow if more companies underperform, impacting overall market valuations. “We believe the market and Street estimates factor in strong rebound in demand in festival and marriage season. Any disappointment on this front can result in further cut in EPS estimates on top of the 3.8/2.8 per cent cut in EPS for FY25/26. We remain cautiously optimistic with a stock specific approach and advise avoiding FOMO (fear of missing out) in current volatile times,” stated PL Capital Institutional Equities in a recent note.