Q1 results: Domestic cyclicals drive earnings growth so far; Industrials, Real Estate, PSU Banks preferred themes: MOFSL

Domestic cyclical sectors have been the primary drivers of earnings growth in the first quarter of FY25, while global cyclical sectors have been a drag on earnings performance so far, analysts said.

In its interim review of Q1 results season, brokerage firm Motilal Oswal Financial Services analyzed 163 companies within its coverage universe, with 39 Nifty companies that announced their Q1 results as of August 1. These companies constitute 76% and 80% of the estimated PAT for the MOFSL and Nifty Universe, respectively; 48% of India’s market capitalization; and 86% weightage in the Nifty.

The brokerage report notes that the aggregate earnings performance was hit by a sharp drag from global commodities. Excluding Metals and Oil & Gas, the MOFSL Universe and Nifty 50 posted a healthy 16% and 15% earnings growth versus expectations of +13% each, respectively.

“The earnings growth was fueled by BFSI and Autos. Along with Metals and Oil & Gas, the earnings of the Cement and Specialty Chemicals sectors also decreased during the quarter,” MOFSL report said.

The overall earnings growth was driven by domestic cyclicals, such as Automobiles (+34% YoY) and BFSI (+19% YoY), with improved contributions from Healthcare (+19% YoY), Real Estate (+80% YoY), and Capital Goods (+14% YoY).

On the contrary, earnings growth was weighed down by global cyclicals, such as Oil & Gas (OMC’s profit plunged 80% YoY), which saw a dip of 49% YoY, along with Metals (-5% YoY), Cement (-2% YoY), and Specialty Chemicals (-16% YoY), according to the report.

Nifty 50 Earnings

In the Nifty 50 index, the earnings of 39 companies grew by 5% year-over-year (YoY), surpassing the estimated 2% YoY growth. This positive performance was driven primarily by HDFC Bank, Tata Motors, ICICI Bank, Maruti Suzuki, and Tata Consultancy Services (TCS), which collectively contributed 131% to the incremental YoY earnings growth.

In contrast, BPCL, JSW Steel, Reliance Industries, and Asian Paints had a negative impact on Nifty’s earnings.

The Nifty stocks reported a sales, EBITDA, PBT and PAT growth of 7%, 6%, 5% and 5% YoY. Among these Nifty constituents, twelve companies reported profits below MOFSL’s expectations, eleven exceeded expectations, and sixteen delivered results in line with projections.

Nifty EPS Estimates

Nifty EPS estimate for FY25 was cut by 1.2% to ₹1,120, largely owing to Reliance Industries and BPCL. FY26E EPS was also reduced by 0.8% to ₹1,319 from ₹1,330 as upgrades in Infosys, Coal India, Tata Motors, and Maruti Suzuki were offset by downgrades in Axis Bank, HDFC Bank, ICICI Bank, and IndusInd Bank, MOFSL said.

Top FY25E upgrades were seen in Coal India (10.8%), Dr Reddy’s Laboratories (6.7%), Adani Ports & SEZ (4.3%), Tata Steel (3.3%), and Infosys (3.1%).

Top FY25E downgrades were seen in BPCL (-16.3%), JSW Steel (-8.2%), IndusInd Bank (- 7.7%), UltraTech Cement (-6.6%), and Tata Consumer Products (-6.3%).

Stock market strategy

Industrials and Capex, Consumer Discretionary, Real Estate, and PSU Banks are MOFSL’s key preferred investment themes. It remains ‘Overweight’ on PSU Banks, Consumption, Industrials, and Real Estate.

The brokerage firm recently raised IT to marginal ‘Overweight’ from ‘Underweight’ and cut Auto from ‘Overweight’ to ‘Underweight’. It also turned Overweight on Healthcare from Neutral, while maintaining its Underweight stance on Private Banks and Energy in its model portfolio.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.