The Indian market has begun its first earning season of the financial year ending March 2025. As initial results start coming in, the markets have already witnessed some sharp movements, with expectations of more volatility in the upcoming weeks.
To gain insights into what to expect from the June quarter earnings and the potential market reactions, we spoke with Dharmesh Kant, head of equity research at Chola Securities.
Markets Overview
“We were expecting an EPS (earnings per share) of around 1,035.50 for FY24 for the Nifty companies, which it delivered. What we have pencilled in for FY25 was only 12 to 14% of EPS growth on the Nifty 50 side. What we have pencilled in for FY25 was only 12 to 14% of EPS growth on the Nifty 50 side.”
“So that translates to around say 1,150 to 1,200 kind of an EPS for FY25. So if you take even 1150, markets are fairly priced. I mean, it’s not super high. Around 20-21 kinds of multiple, we are assigning that for the market. So 23,000 to 24,000 should be the fair value of the market,” said Kant explaining his view on the current market scenario.
He added that it was interesting that most analysts are pencilling in EPS growth in the mid-teens rather than in the high 21%-25% range as in the prior year.
Kant further said that this year should see the bottom of the earnings degrowth cycle. “Next year onwards that is FY26 onwards it will again pick up in a big way and it will be again back to early 20s kind of EPS growth. And that is why you are not seeing any correction in the market even though we all are going with early teens kind of earnings growth forecast,” the analyst added.
Earnings In Focus
We asked Kant to share his views on some of the sectors that would be in focus this season and what the investors could expect from them.
Auto
“Automobile companies we have seen offering discounts and I mean they are branding it differently, but it is a price cut. The fact remains dealer inventories are very high and dealers are pressing OEMs (original equipment manufacturers) hard not to send vehicles until the inventory is cleared and that’s why such discounts have come into play.
“Quarterly volume numbers we have seen only M&M, Maruti and HeroMoto Corp were able to record good year-on-year growth. The rest all were in single digits. The farm side, again, remains to be a problem. The monsoon in June was very bad. It has picked up a bit in July.”
Telecom
“Telecom is a space that has seen a re-rating. Most of the companies have taken price hikes that will help their ARPUs (average revenue per user). It was around ₹120, ₹130 kinds of levels when Jio was launched, and now it’s back to around ₹200.
Jio is behind what Bharti Airtel is commanding, in terms of ARPU (average revenue per user), but eventually, it will catch up. And going by Bharti Airtel’s management, an ARPU of ₹300 by next year is pretty much on the cards. It also seems likely going by the way the data usage and everything is panning out. So telecommunication will continue to be in a sweet spot.”
Pharma And Chemicals
“Pharma, I mean similar trajectory 15% to 20% kind of growth you can expect. So there will be a steady state, no margin depletion out there. Chemical, the buzz is that things are likely to improve. Some queries are happening from the European side and most of our speciality chemical companies, for example, Navin Fluorine or UPL, all supply majorly to the European market.
“So chemical is one space, which has had a couple of bad years both earnings-wise and at the bourses. But, now it seems that some traction is getting built. So we have to wait for the management commentary. But it looks like they will start getting some better businesses and that will drive the stocks going forward. So that sector looks interesting at the current juncture,” Kant noted.
Oil and Gas
“Oil and gas does not look like it’s going to throw any surprises. It will continue the way it is. The refineries will continue the way it is and it’s difficult to predict because the government can intervene anytime on the pricing of petroleum products. But the good part is I don’t see crude oil going anywhere. It’s very comfortable in the zone of $80 to $90.
“It will continue to do so and with more and more hybrid and EVs coming into play, there will definitely be pressure on the oil basket which is good for companies like oil refiners. It should bode well from a trading perspective,” he said.
Information Technology
“Even if the status quo is maintained, it would be good enough. I mean, if TCS and Infosys maintain the same guidance, and they just talk about the dealings and better visibility going forward, it should be fine,” Kant said.
“I don’t see any material change in the guidance of IT companies or any positive developments happening out there. All the discussion is about what will happen after the new government comes to the US.
“One point of caution out here is that it was Donald Trump — who is likely to win back this election — who forced IT companies to give more on-shore jobs than offshore and that led to the increase in the cost of most of the IT companies and that led to the decrease in the EBIT margins. If he comes back, I mean he will continue with the same policy, he will be harsher this time around, with more jobs for Americans and that will not set well with most of our large-cap peers in the basket,” he added.
See Also: Motilal Oswal Expects Up To 16% Earnings Spurt For Nifty, Sees Strong Momentum Over Next 3-6 Months
Budget Expectations
Next week will also see the first budget presentation from the newly formed government. We asked the analyst, what he expects from the upcoming budget.
“As far as the budget is concerned I think if they don’t change anything and just go by the interim budget whatever announcements were there it would be good for the markets,” Kant said.
He added that the “only worry is some social balancing may happen in the budget and some tinkering with the capital gains tax on the equities may come through.”
The Inflows In The Market
The market has been seeing a consistent inflow of funds through mutual funds, surging to ₹40,608 crore in June — a record high. So we asked Kant what he thought about the trend and its impact on the market.
“I mean, supply is the same. In fact, it has reduced because people are very bullish from the long-term perspective, say, five or 10 years. So whatever investment they have made, nobody wants to sell that. And most of them are sitting on a 2x-3x kind of profit.
“So the supply of free float has reduced and sector-specific, theme-specific mutual fund buying has increased. The demand has gone up substantially, if you have ₹22,000 odd crore every month going for sector-specific funds, you will have railway and defence shooting up through the sky and that is what is playing out. So this is a liquidity-driven market.
“The story is fine, everybody is on the same page as far as the structure story of defence or railways is concerned, we all are convinced about that. But the recent run-up has been because there are arguably no sellers in the market.
“So frankly speaking as of now I don’t see a reason why the market should correct but in terms of valuation, there is no way I can justify to you right now based on, say, two or three years kind of a time frame that these valuations are fine,” he said.
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