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Published: November 9, 2024
Updated: November 9, 2024

Q2 Decline for India Inc: Will Q3 Earnings Bring a Turnaround?

A Mixed Bag of Sectoral Performance in Q2

The recent Q2 earnings reports for India Inc. have highlighted a challenging season for various sectors. With over 309 companies in the Nifty 500 index reporting their financials for the quarter ending September 2024, the data reveals a modest 7% growth in gross sales alongside a 3% dip in consolidated net profits. Sectors such as industrials, finance, infrastructure, pharmaceuticals, and telecom have shown resilience, while others—like FMCG, automotive, cement, IT, metals, and energy—have posted weaker results.

In the FMCG space, Nestle India recorded a slight decrease in net profit, down 0.9% to ₹899.49 crore for Q2FY25. Meanwhile, ITC managed to grow its net profit by almost 2%, reaching ₹4,992.87 crore. According to experts, cyclical slowdowns in manufacturing and investment have been apparent, although certain industries, including electronics manufacturing services (EMS) and pharmaceuticals, have demonstrated better performance.

Analysts’ Insights on Market Trends

Commenting on the broader trend, Jathin Kaithavalappil, Assistant Vice President at Choice Broking, emphasized the moderation in market expectations. Despite strong market rallies over the past three years, fueled by a 7% GDP rise and a 20% earnings increase, Q1 FY25 saw only modest growth, and Q2 earnings were stagnant at 0%, even with contributions from banks. Kaithavalappil cautioned that Q3 and Q4 results may also reflect flat or weak growth rates, as market participants have started adjusting expectations accordingly.

Anticipated Investments and Government Capex

Himani Shah, Co-Fund Manager at Alchemy Capital Management, projected a potential rise in public and private investments following the Maharashtra state elections in November 2024. A significant uptick in government capital expenditure (capex) could accelerate economic growth, especially with the investment-to-GDP ratio climbing to 31% in FY24. Corporate balance sheets also appear strong, with low debt-to-equity ratios and solid returns on equity. According to RBI data, high capacity utilization is another positive indicator, signalling potential for increased private sector capex.

Nifty50’s Positive Movement Amidst Challenges

Despite these headwinds, the NSE Nifty50 has gained nearly 8% in the current fiscal year, underscoring a degree of investor confidence. Vinod Nair, Head of Research at Geojit Financial Services, expects a better Q3 performance due to a recovery in government spending, which slowed earlier in the year because of national and state elections. He added that declining global inflation might relieve some pressure on Indian companies’ EBITDA, which faced contraction in the first half of the year from high inflation and reduced realizations.

Q3 Prospects and Market Outlook

The Q2 results for India Inc. reflect a slowdown across various sectors, with analysts signaling cautious optimism for Q3. With potential increases in government and private capex, and a hopeful rebound in demand post-elections, some expect gradual recovery. However, challenges in global and urban demand may temper growth, resulting in a careful yet hopeful outlook for the latter half of the fiscal year.