'We Expect Corporate Earnings To Recover By...' - Motilal Oswal's 'Hope' Amid Grim Q2 Season

Nifty earnings are expected to witness a modest growth of 5 per cent in FY25, marking the first year of single-digit growth in the past five years, according to a report by Motilal Oswal.

What Did The Report Say?

The report highlighted a moderation in corporate earnings as the reason for the single digit growth this year after a strong performance in recent years.
"Since August 2024, we have reduced our FY25 estimates for Nifty EPS by 5 per cent, and we now expect a modest 5 per cent growth for Nifty earnings in FY25, the first year of single-digit growth in five years," the report stated.

Over the FY20-24 period, the report noted that the corporate earnings had registered a robust compound annual growth rate (CAGR) of 21 per cent. However, this momentum has slowed in the first half of FY25. In the July-September quarter (2QFY25), earnings growth for the companies covered contracted by 1 per cent year-on-year (YoY), while Nifty-50 earnings grew by just 4 per cent YoY.

This marked the weakest earnings performance in eight and 17 quarters, respectively. The report said "Earnings growth for MOFSL Universe (-1 per cent YoY) and Nifty-50 (+4 per cent YoY) in 2QFY25 was the lowest in 8 and 17 quarters, respectively".

Excluding global commodity sectors, the report added that the earnings growth remained relatively stronger at 12 per cent for the companies covered and 11 per cent for the Nifty-50 in the same period.

Corporate Earnings

Despite a muted first half, the report projects a recovery in corporate earnings in the second half of FY25. Earnings are expected to grow by 9 per cent YoY in the second half, compared to flat growth in the first half. The recovery will likely be driven by increased rural spending, a robust wedding season with 30 per cent more weddings YoY, and a pick-up in government expenditure.

It said "We expect corporate earnings to recover in 2HFY25 (9 per cent YoY growth for MOFSL Universe in 2HFY25 vs. flat YoY performance in 1H), aided by a rise in rural spending, a buoyant wedding season". The report underscored the evolving trends in corporate earnings, highlighting both challenges and growth drivers in the near term. (ANI)

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