Further downgrades in corporate 2025-26 earnings estimates likely: Here are performance forecasts for different industry sectors
After a weak first half of 2024-25, corporate India saw a modest earnings recovery in the December 2024 quarter, driven by stronger consumption demand and margin expansion in some sectors.#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 an Emkay report shows that BSE 500 companies’ adjusted PAT grew 7.1% year-on-year, down from 25.8% in the December 2023 quarter. Earnings had declined 1.2%year-onyear in the September quarter.
What drove the change?
The performance was largely driven by the BFSI sector. Excluding BFSI, the adjusted net profit growth of BSE 500 moderates to 4.6% year-on-year. The energy sector dragged the overall earnings growth, while the healthcare and real estate sectors managed to provide support.Sluggish growth
The BSE 500 companies’ revenue grew 5.8% year-on-year, staying in single digits for seven quarters. Most companies in the BSE 500 index saw a deterioration in EBITDA margins. Out of the 406 non-financial sector companies, 214 (52.7%) saw a year-on-year contraction in the operating profit margins,as per the Reuters-Refinitiv database. The stability in commodity prices can be gauged by looking at the benchmark Bloomberg Commodity Index, which declined by 1.6% between 30 September 2024 and 31 December 2024. On an annual basis, the index fell 3.3% to an average of 98.6 in the December 2024 quarter. The Bloomberg Commodity Index tracks global prices of oil, natural gas, copper, zinc, and other commodities.India Inc.’s moderate performance is evident in the unfavourable beat-to-miss ratio. Among the 364 BSE 500 companies with earnings estimates from at least two analysts (Reuters-Refinitiv), 59.9%, or 218 companies, missed estimates this quarter.
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The lacklustre quarterly performance also led to earnings downgrades for most companies, which is contributing to the ongoing volatility. Out of the 411 stocks with 2025-26 PAT estimates from Reuters-Refinitiv (based on at least two analysts), 79.1%, or 325 companies, have seen downgrades since 31 December 2024. Among these, 39.1%, or 161 companies, had cuts exceeding 5%. Energy, construction materials, consumer staples, automobiles and industrials are sectors where most companies have seen earnings downgrades for 2025-26.
Despite weak commodity prices,operating performance faltered
Change in commodity prices in December 2024 quarter)*
Road ahead
Analysts expect further downgrades. “The expectations for 2025-26 corporate earnings are still somewhat elevated given the underlying macro-micro backdrop, and are thus ripe for further downgrades,” states an earnings review report by Motilal Oswal. The report has also expressed concern about the expensive valuations of mid caps and small caps.Despite near-term concerns, there is optimism about a gradual recovery in domestic demand. Higher government capex allocation, repo rate cut, income tax changes and likely peaking of food inflation are some of the factors that will support demand, says a recent Prabhudas Lilladher report. Here’s how different sectors of the BSE 500 index have fared in the third quarter of 2024-25.
Banks
The challenges
Higher provisioning.Pressure on net interest margins (NIM) and deceleration in loan growth amid cautious stance on unsecured retail lending.Behind the scenes
Competition for deposits continues to remain strong and the credit to deposit ratio remains elevated.Private banks saw weakness in business momentum and moderation in margins.Public sector banks were better placed due to improvement in asset quality and healthy provision coverage ratio (PCR).Winners
YES Bank and Punjab & Sindh Bank.Forecast
The Motilal Oswal earnings review report maintains a cautious view on margins and the delinquency cycle of unsecured loans. It expects credit costs to remain elevated for private banks. While the report has reduced the earnings growth estimates for private banks for 2025-26, it has marginally raised estimates for public sector banks.NBFCs
The challenges
Mixed performance on the back of loan growth and asset quality challenges.More competition and elevated credit costs.Behind the scenes
HFC disbursements were affected by regional headwinds, whereas NBFC-MFIs saw further deterioration in asset quality.Tepid commercial vehicle (CV) demand amid weak government spending.Winners
Capri Global Capital and Shriram Finance reported the most year-on-year jump in consolidated net profits.Jump in total income (88.4% jump in PAT) helped Capri Global Systems.Firm resale prices of CVs and stable credit costs helped Shriram Finance.Forecast
Brokerage AnandRathi expects easing of liquidity and rate cut to benefit NBFCs.Macroeconomic shocks can affect consumption.Relentless competition by banks in various product segments like loan against shares, small business loans, housing finance and microfinance are key risks for the sector.Insurance
Behind the scenes
Decent premium growth.A shift in product mix towards Ulips led to a contraction in value of new business (VNB) margins.Low automobile sales impacted the performance of general insurance companies.Health insurance companies continue to see steady demand.Winners
PB Fintech and SBI Life reported the most year-on-year growth in net profits.PB Fintech reported an 88% year-on-year jump in net profits.Growth in new health and life insurance business helped PB Fintech.Decent growth in the net premium income helped SBI Life Insurance report a 71.2% jump in the bottom line.Automobiles and ancillaries
What worked
Festive season discounts in CVs.New launches.The challenges
Volume growth remained sluggish in the CV segment.The export volume growth was healthy for both two-wheelers and passenger vehicles amid a low base. However, the global demand outlook remains uncertain.Winners
Asahi Glass and Samvardhana Motherson International reported the most year-onyear jump in consolidated net profits.A significant jump in other income and reduction in interest costs helped Asahi to report 66.3% growth in PAT.Improved operational efficiency helped Samvardhana register 66.3% growth in net income.Forecast
Budget 2025’s income tax cuts to improve demand.Healthcare
What worked
Better volumes, steady business in the US.Better product mix and lower raw material costs.Hospital segment reported healthy revenue growth due to improved occupancy, higher average revenue per occupied bed.Winners
GlaxoSmithKline Pharmaceuticals and Laurus Labs reported the most year-onyear jump in net profits.A PAT jump of 402.8% driven by strong traction across product portfolios.Strong performance of CDMO (Contract Development and Manufacturing Organisation — firms that offer services to pharma companies in drug development and testing), operating leverage gains, and higher other income drove Laurus Labs’ bottom-line growth of 298.9%.Forecast
An ICICI Securities report states that the traction in India business is likely to be maintained, while new launches and better sales of Revlimid will support growth in the US market in 2025-26.
Energy sector dragged the performance of India Inc.
Healthcare and real estate sectors provided support.
Oil & gas
Winners and losers
HPCL and BPCL showed strong marketing margins.Indian Oil Corporation’s performance suffered due to high inventory losses.Behind the scenes
Higher LPG losses continue to drag the performance of OMCs.The combined consolidated reported net profit of three oil marketing companies (OMC) was Rs.8,464 crore in the December 2024 quarter, compared to Rs.12,923 crore in the December 2023 quarter.Reliance Industries reported a 7% yearon-year increase in consolidated PAT due to the strong performance of its O2C (oil to chemicals), telecom and retail segments.Stronger refining and petrochemical cracks supported O2C.The tariff hike boosted Jio’s performance.Growth in the grocery business and turnaround in the fashion & lifestyle business supported the retail segment.Forecast
A Prabhudas Lilladher report expects OMCs’ refining margins to weaken amid a decline in Singapore GRM.Marketing margins on petrol/diesel to moderate.Under-recoveries on LPG likely to persist.Consumer staples
Behind the scenes
Marginal growth in volumes due to weak urban consumption.Increase in local competition and higher inflation.Rising agri-commodity costs and limited price hikes squeezed gross margins.Winners
Zydus Wellness and Adani Wilmar reported the most year-on-year jump in net profit growth.Steady growth in rural consumption in both food and non-food categories helped Zydus Wellness to report 2,033% jump in net profit growth.Strong edible oil sales drove Adani Wilmar’s 104% bottom-line growth.Forecast
Budget 2025’s income tax cuts to improve spending.Information technology
Behind the scenes
Improvement in revenue conversion.Modest increase in discretionary spending and AI deals.Good performance by healthcare and retail sectors, and sequential growth in the BFSI segment for some companies, helped the IT companies.Winners
HCL Technologies led the highest revenue growth of 3.8% quarter-over-quarter in constant currency (CC) terms, followed by LTIMindtree, Infosys and Wipro, with 1.1%, 0.9% and 0.1% growth, respectively.TCS reported a flat revenue growth on a sequential basis in CC terms.Forecast
An IDBI Capital report states that tailwinds will emerge in the future from an increase in fixed-price contracts and stronger offshore mix.Improving demand and green shoots in IT and AI spending present strong opportunities for the sector.Metals
Behind the scenes
The resumption of construction activities helped ferrous companies.Volume growth was offset by weakness in pricing amid higher imports.Non-ferrous companies reported a better performance, aided by better pricing and muted costs.Winners
JSW Steel and Tata Steel reported 70.3% and 36.3% decline in net profit growth on a year-on-year basis , respectively, due to lower steel prices.Hindustan Zinc (32% jump in PAT) and Vedanta (76.2% jump in PAT) reported the most year-on-year growth in net profit.Increased production and lower cost of production helped Hindustan Zinc.Improved performance of its zinc and aluminium segments helped Vedanta.Forecast
Analysts expect coking coal prices to decline in the March 2025 quarter.This will help margins of ferrous companies.US President Donald Trump’s tariff pressure on global steel prices likely.For non-ferrous, a sharp drop in alumina prices in China in February 2025 could create margin pressures in the near term.Cement
What worked
Pick-up in construction activities.Improvement in rural demand.Increase in government spending.Winners
Ambuja Cements and Ramco Cements reported the most year-onyear jump in PAT.Improved volumes and higher other income helped Ambuja Cements to report 157% growth in net profit.A one-time gain from the sale of land boosted the net profit of Ramco Cements, which grew by 115%.Forecast
l Industry consolidation, cost-saving measures and rising housing demand will drive the performance of cement companies.9 of 10 top BSE 500 firms have seen earnings downgrades in past two months
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This story originally appeared on: India Times - Author:Faqs of Insurances
