The CEOs are less bombastic, the analysts are concerned, and the investors are brooding over the red in their portfolios.
Much of the talk in these past few weeks has been around India Inc's disappointing Q2 results. Revenue growth across sectors and industries looks in the range of 5-7% YoY, the slowest in four years. Large bellweather companies like Reliance Industries have reported disappointing numbers, missing estimates.
Among the underperfomers is the cement and construction sector, whose results so far have shown negative average revenue growth and falling margins. One factor here is the strong monsoon, which while great for agriculture, has delayed construction activity across the country.
But a bigger factor, as the Nuvoco Vistas management pointed out, is falling government spending. "Union government capex has dropped 19% YoY, and state governments’ capex declined by 6% YoY in the first five months of FY25, after a 40% surge in the previous year," they noted. "Some states have seen 35%+ drops in state capex spending."
Construction and cement account for one-fifth of corporate earnings, so weakness here has dragged down overall performance. Sectors such as industrial machinery and plastics are also struggling, and consumer demand remains weak across sectors like FMCG, auto, and retail.
Still, there are some bright spots emerging in the results. In our hunt for silver linings, we take a closer look at these.
In this week's Analyticks:
It's results season!: In a downbeat quarter, who are the outperformers?
Screener: Rising stocks outperforming Forecaster estimates in revenue and EPS in Q2FY25
Banking and tech are the front-benchers this quarter
As Q2 results have rolled in, one emerging bright spot has been banks. Stronger deposit growth has helped drive net profits up. Net interest income is higher, although it is growing slower than it did over the past two years. Still, steady performances from major banks like ICICI Bank has helped boost sentiment for this part of India Inc.
Another sector that is emerging from the doldrums, is IT and software. According to tech CEOs, discretionary spending is coming back globally, with Mastek CEO Umang Nahata noting that "sentiment in the market is positive compared to what it was earlier." Infosys has increased its guidance for the second consecutive quarter amid this shift.
A relatively surprising entry here is textiles. The textile sector has struggled for the past several quarters with rising competition from players in Vietnam and Bangladesh, as well as weak demand for intermediary products. This quarter however, there are hints of green shoots, with rising revenues overall. Welspun Group Chairman Balakrishan Goenka has pointed to the growth of the advanced textiles segment and global brands as drivers for Indian players. "Domestic demand," he notes, "has also ramped up."
Average revenues jump, but companies struggle with margins and profitability
Even in these better performing sectors, there are some concerning trends. Textiles is still struggling with margin growth, despite double digit revenue expansion. Banks while growing, are seeing a more muted result than previous quarters.
When domestic growth slows, investors and analysts alike look to export-oriented sectors like software and textiles. While the jury is still out on the outlook for the textile sector, IT companies, particularly IT services, are coming out of the doldrums, thanks to drivers like interest rate cuts in the US and EU. Salil Parekh, the Infosys CEO noted, "Typically we have seen that when interest rate cuts begin and inflation is more in control in Western Europe and the US, spending on large technology programs increases".
But what is driving overall Q2 weakness? Management across sectors point to the slowing Indian economy. There are some clear warning signs: slower credit growth and higher food inflation. FMCG growth, which used to be in the double digits a couple of quarters ago, is now down to 1.5% to 2%. All of this points to Indians growing more protective of their wallets.
So even as consumer spending recovers globally, we need to keep an eye on Indian demand, particularly in urban areas. "The pressure points are coming from mega cities and metros," Nestle India Chairman Suresh Narayanan says. This lack of consumer confidence is set to suppress the performance for much of India Inc.
Screener: Rising stocks outperforming Forecaster estimates in revenue and EPS in Q2FY25
Banking & finance stocks have the highest positive surprise in Q2FY25
With the result season in full flow, we take a look at companies that have outperformed Trendlyne’s Forecaster estimates. This screener shows stocks rising over the past month while outperforming Forecaster estimates in revenue and earnings per share (EPS) in Q2FY25.
The screener is dominated by stocks from the banking & finance, software & services, and consumer durables sectors. Most notable stocks that feature in the screener are Amber Enterprises, Dixon Technologies, Nippon Life India Asset Management, Aditya Birla Sun Life AMC, Indian Bank, Federal Bank, Great Easter Shipping, Multi Commodity Exchange of India, and City Union Bank.
Amber Enterprises’ revenue and EPS beat Trendlyne’s Forecaster estimates by 44.8% and 1,283.3% in Q2FY25. Revenue beat estimates, helped by the consumer electronics company’s revenue growing by 81.2% YoY on the back of an improvement in the consumer durables (which contributes to 64% of total revenue) and electronic manufacturing services (EMS) (contributes 29%). The company’s EPS outperformance was driven by a net profit of Rs 19.2 crore in Q2FY24 compared to a Rs 6.9 crore loss in Q2FY24.
Nippon Life India Asset Management also shows up in the screener after beating Forecaster estimates for revenue and EPS by 21.2% and 14.3%, respectively in Q2FY25. This asset management company’s revenue beat estimates owing to higher assets under management and improved inflows in the SIP and equity funds segments. EPS beat Forecaster estimates after growing by 47.3% YoY to Rs 360.1 crore during the quarter.
You can find some popular screeners here.
