Investing in bank, auto, healthcare, metal or IT stocks? Check how different sectors of Nifty 500 fared in Q1 2025 The report lists increased economic activity, especially government spending, rural recovery, given the outlook of above-normal monsoon, lower commodity prices, likely start of the rate cut cycle and expectations of healthy upcoming festive demand as some of the factors that will support the performance of corporate India.Heres how different sectors of the Nifty 500 fared in the first quarter of 2024-25
Corporate India’s profitability growth in the June 2024 quarter weakened due to several factors. The main reasons included increased expenditure amid fading tailwinds from lower raw material costs, election impact resulting in lower government expenditure, and muted demand due to the heatwave. Though the sales growth improved, it continues to remain in single digits. Profitability, on the other hand, saw a sharp deceleration.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Data from a Bank of Baroda report shows that the aggregate sales and net profit of 3,000 companies grew at 7.7% and 3.5%, respectively, on a year-on-year (y-o-y) basis. These numbers witnessed a growth rate of 2.3% and 37.1%, respectively, in the corresponding quarter of the previous year.
Most of the growth has been contributed by the banking and financial services sector. The sector has benefitted from an uptick in business upcycle and registered a robust performance on all financial metrics. Excluding this, the sales growth of 2,539 companies softened to 5.2%, whereas the net profit registered a decline of 3.1%. “The continued drag on sales growth is alarming as it signals weak domestic demand,” the report states.
The benchmark Bloomberg Commodity Index, which tracks the global prices of oil, natural gas, copper, zinc and other commodities, grew by 1.5% between 31 March and 30 June this year. In terms of y-o-y growth based on the average index values, the index was flat (-0.08%) between the June 2023 and June 2024 quarters.
Looking at the performance of the Nifty 500 index companies, despite the overall weak trend, the majority of the companies improved their y-o-y EBITDA margins. Out of 392 (ex-financial) companies, 55%, or 217, improved operating profit margins.
However, the beat-to-miss ratio turned unfavourable. There are 196 companies in the Nifty 500 index for which earnings estimates (for the June quarter) were compiled by Reuters-Refinitiv for at least two analysts. Out of these, 56%, or 109, companies missed estimates during the June quarter. The ratio of upgrades to downgrades was also unfavourable.
There are 382 companies (from the Nifty 500 index), for which the 2024-25 net profit estimates are available with Reuters-Refinitiv. In the past three months, 226, or 59.1%, of the companies have seen downgrades in their net earnings estimates. In the same period, most companies in the cement, IT, utilities and chemicals sectors have seen 2024-25 full-year earnings downgrades. On the other hand, most companies in the real estate, industrial and financial sectors have seen earnings upgrades.
Market experts believe that an improvement in revenue growth is necessary for sustaining the earnings momentum. “Margins would bump into more headwinds than tailwinds in the future. This is because BFSI credit costs are now normalising, as are input prices. Hence, a top-line revival is extremely critical for both margins as well as profits to improve,” states a Nuvama June quarter earnings review report.
Despite the weak June quarter performance, an Antique Stock Broking earnings review report expects a minimal earnings downgrade in the coming quarters. The report lists increased economic activity, especially government spending, rural recovery, given the outlook of above-normal monsoon, lower commodity prices, likely start of the rate cut cycle and expectations of healthy upcoming festive demand as some of the factors that will support the performance of corporate India.
Here’s how different sectors of the Nifty 500 fared in the first quarter of 2024-25.
Rising commodity prices are putting the corporates’ margins at risk
Banking
The sector reported a tepid performance due to moderation in business growth and an increase in provisioning expenses. NIMs for most banks were impacted due to higher funding costs, while the credit growth was weak in both corporate and retail segments.
The performance ofthe private sector banks was impacted by margin pressures, whereas public sector banks benefitted from an improvement in investment yields aided by the revised investment guidelines. The earnings momentum of the public sector banks was steady, led by healthy PCR (provision coverage ratio) and recoveries.
Among the banking sector stocks of the Nifty 500 index, Punjab National Bank and UCO Bank reported the highest y-o-y growth in consolidated net profits. While the improvement in interest income and decline in bad loans supported the former’s net profit, which grew by 196% y-o-y, steady asset quality and improvement in NIMs helped the latter in reporting a 146.9% jump in consolidated PAT (profit after tax).
A Motilal Oswal earnings review report expects a modest outlook for the banking sector. However, robust balance sheets, strong contingency buffers and reasonable sector valuations provide comfort. The report remains vigilant about margins and the delinquency cycle in unsecured loans. It cuts earnings estimates for 2024-25, for private sector banks, by 3% and raises the same by 1% for public sector banks.
NBFCs
Most NBFCs saw a contraction in NIMs due to an increase in the cost of funds. The disbursement growth was also weaker in the June quarter amid elections and heatwave. The HFCs, gold and vehicle financers saw a sequential deterioration in asset quality.
Among the NBFC stocks in the Nifty 500 universe, SBFC Finance and Cholamandalam Financial Holdings reported the highest y-o-y jump in consolidated net profits. While the cost efficiencies and improvement in asset yields supported the former’s net profit, which jumped by 68% yo-y, traction in home loans/LAP and strong AUM growth supported the bottom line of the latter.
A Systematix report expects the asset quality of the NBFC sector to stabilise as managements are confident of improving collection trends. The growth momentum will be seen across most product segments.
Automobiles & ancillaries
The sector reported decent growth in twowheelers (2W), passenger vehicles and tractors. Moreover, higher margins, aided by better realisations and easing of commodity prices, supported profitability. Though 2W export volumes grew in double digits on a y-o-y basis, the export outlook of 2Ws remains uncertain due to subdued demand in the EU and US.
Among the automobile and ancillary companies in the Nifty 500 universe, Tata Motors and Samvardhana Motherson International reported the highest y-o-y jump in consolidated net profits. Better realisations and raw material cost savings helped Tata Motors report a 74% jump in net profit, whereas strong revenue growth helped Samvardhana Motherson to report a 65.4% y-o-y jump in the bottom line.
Analysts expect the sector margins to moderate in the coming quarters as the commodity prices have started rising. However, positive rural sentiments, upcoming festive season and government’s infrastructure push bodes well for the sector.
Healthcare
The sector reported a good performance during the quarter, with traction in both the pharma and diagnostic segments. However, the hospitals segment saw muted growth amid weak ARPOB (average revenue per occupied bed). The pharma segment was aided by domestic formulations and reduced intensity of price erosion in the US generics, whereas the diagnostics segment was helped by receding competitive intensity.
Among the healthcare companies in the Nifty 500 universe, Jubilant Pharmova and Biocon reported the highest y-o-y jump in net profit. Jubilant Pharmova reported a 7,432% y-o-y jump in net income, driven by cost efficiencies and exceptional gains from the sale on investment in an associate firm. On the other hand, time gain from the sale of Biocon Biologics’ (subsidiary) domestic branded formulation business boosted the bottom line, which grew 550% y-o-y.
A recent JM Financial report lists capacity addition, optimising case/payor mix and improving occupancy as key medium-term drivers for the sector.
Auto, real estate among sectors that reported better margins
Improved EBITDA margins were mainly due to high cost efficiencies.
Oil & gas
The sector dragged the overall performance of corporate India, with OMCs registering a substantial decline in PAT on a y-o-y basis, amid low GRMs and LPG under-recoveries.
Reliance Industries reported a 5% y-o-y decline in consolidated PAT due to the weak performance of O2C and retail segments. While weak product cracks and muted petrochemical margins impacted the O2C segment, tepid discretionary demand impacted the retail segment. The telecom segment performance was stable, aided by subscriber additions. On the other hand, upstream player ONGC reported a 32.6% y-o-y decline in consolidated PAT due to rising expenses.
Arecent ICICI Securities report states that the prospects of the sector will remain strong for the rest of 2024-25, led by firm Brent crude and LNG prices.
5 of the 10 largest Nifty 500 firms missed estimates
Consumer staples
The sector reported an improvement in revenue growth compared to the March quarter, led by a gradual recovery in the rural market. The gross margin continues to remain stable for most companies. However, heatwave and election-related restrictions negatively impacted consumption.
Among the consumer staples companies in the Nifty 500 universe, Patanjali Foods and Honasa Consumer reported the highest y-o-y jump in net profit growth. The stable performance of the FMCG portfolio and lower volatility in edible oil prices helped Patanjali Foods report a 199.4% y-o-y jump in net profit. On the other hand, improvement in gross margins and scale-led benefits helped Honasa Consumer report a 63% y-o-y jump in net profit. Most companies remain hopeful about rural recovery. An Antique Stock Broking report expects overall recovery in the second half of 2024-25.
IT
The information technology sector reported a modest performance. There is a decline in the attrition rate, indicating an easing of supply-side constraints. The companies continued to focus on cost optimisation. Despite an overall sluggish demand, emerging technologies saw good traction during the quarter.
Among tier 1 companies, Infosys reported the highest sequential revenue growth (in constant currency terms) of 3.6%, followed by TCS and Tech Mahindra with 2.2% and 0.7% quarter-over-quarter growth, respectively. On the other hand, Wipro and HCL Technologies reported a sequential revenue decline of 1% and 1.6%, respectively. The management commentary across IT companies anticipates a ramp-up in deals in 2024-25. An IT sector report by Axis Securities expects a robust long-term outlook for the sector, led by broad-based growth in manufacturing and retail segments, resilient deal wins and easing of supply-side constraints. It expects strong revenue growth in the second half of 2024-25.
Metals
The performance of ferrous companies was impacted by election-related restrictions, weak steel prices and increased imports from China. However, lower coal costs supported the EBITDA/tonne for steel players. On the other hand, lower input costs and availability of higher linkage thermal coal supported the margins of non-ferrous players.
Among the steel companies of the Nifty 500 index, Jindal Saw and Tata Steel reported the highest y-o-y jump in net profit growth. Bigger orders from the Middle East and North Africa helped the former to report a 67.6% jump in the bottom line, whereas traction in The Netherlands’ operations and lower expenses supported the net profit of the latter, which grew by 51.4% y-o-y.
Among non-ferrous companies, Hindustan Copper reported a 139.8% increase in net profit, aided by a strong jump in revenue. National Aluminium Company reported a 76.3% jump in net profit, supported by margin expansion due to lower power and fuel costs.
Analysts expect the performance of ferrous companies to improve due to the resumption of infrastructure activities after the elections and lower coking coal prices. On the other hand, steady base metal prices, amid restricted supply and stable demand, are expected to support the performance of non-ferrous companies.
Cement
The sector reported a weak performance amid a decline in realisations due to price corrections and tepid volume growth because of the elections and heatwave. However, reduced input costs and lower freight costs supported the margins. Among the cement companies in the Nifty 500 universe, JK Cement and Dalmia Bharat reported the highest y-o-y growth in net profit. Lower costs helped JK Cement to report a 62% jump in PAT, whereas Dalmia Bharat reported an 8.5% jump in net profit, aided by increased volumes.
Industry consolidation, traction in infrastructure and housing segments, and lower input costs are expected to support the performance of the cement sector in the future.
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This story originally appeared on: India Times - Author:Faqs of Insurances
