Q1FY25 result preview: Net profit of Nifty 50 may decline QoQ; IT sector may see stable-to-improving margins

Q1FY25 result preview: As the Indian stock market trades at record-high levels, all eyes are now on India Inc.'s June quarter (Q1FY25) earnings, which are set to kick off this week. IT bellwether TCS will report its Q1FY25 earnings on Thursday, July 11.

The market is at a dizzying high, with an inflated valuation. It needs a solid quarter of corporate earnings to move ahead with such kind of valuation. In the next few weeks, corporate earnings and the Union Budget, which is to be presented on Tuesday, July 23, will dictate the course of the market.

Also Read: Budget 2024 date: Nirmala Sitharaman to present Budget 2024-25 on July 23, session begins from July 22

The Q1 numbers are expected to be sombre. Experts believe Nifty 50's income may decline sequentially.

"We expect Q1FY25 net profits of the BSE-30 index to increase 8.1 per cent year-on-year (YoY) but decline 8.4 per cent quarter-on-quarter (QoQ), and for the Nifty-50 index to be flat YoY but decline 10.7 per cent QoQ," said brokerage firm Kotak Institutional Equities (Kotak Securities).

The brokerage firm estimates EPS (earnings per share) of the BSE-30 index at ₹3,521 for FY25 and ₹4,063 for FY26. It expects the Nifty-50's EPS at ₹1,093 and ₹1,249 for FY25 and FY26 respectively.

Also Read: India Inc’s revenue growth estimated to slow down QoQ, operating margins to remain steady at 15-18% in Q1FY25: ICRA

Oil marketing companies (OMCs) may report a subdued quarter, but several other sectors, such as automobiles, banks, and pharma, may see a decent YoY rise in net income.

Kotak expects the automobile sector to report higher volumes, while banks may report decent NII (net interest income) growth but marginal compression in NIMs (net interest margins).

On the other hand, the capital goods sector is expected to show strong execution.

Also Read: Q1 results preview: FMCG sector may see improving volume and value growth trends amid demand recovery

The IT services sector may see seasonal strength, deal ramp-up, and stable-to-improving margins.

Also Read: Q1 results preview: From TCS to HCL Tech, IT sector revenue growth expected to improve sequentially

Metals and mining may show higher realisations, and pharmaceuticals are expected to report continued stability in the US and traction across other markets, Kotak said.

Nuvama Wealth Management expects Nifty 50's earnings to grow 2 per cent YoY in Q1FY25 against a 16 per cent growth in FY24.

"With margin tailwinds fading, the top line needs to recover; otherwise, there could be risks to FY24–26 consensus EPS growth forecasts of 15–16 per cent. The consensus forecast of Nifty earnings for FY24, FY25 and FY26 is ₹961, ₹1,095, and ₹1,258, respectively," said Nuvama.

Amit Goel, co-founder and chief global strategist at Pace 360, expects India Inc. to report flat profit on a YoY basis.

"India Inc.'s aggregate net profit stood at ₹3.41 lakh crore in June 2023. For June 2024, we predict that India Inc. will post an aggregate net profit of about ₹3.4 lakh crore, approximately the same as in June of the previous year," said Goel.

Goel believes that growth might be marginally slower than in the previous quarter due to factors like monsoon dependence and infrastructure activities.

"The IT sector might see some sluggishness, with some companies even experiencing a decline. Healthy loan growth is expected in banks, but NIMs might be under pressure. Public sector banks (PSUs) could outperform private lenders. Nifty EPS estimates are expected to rise slightly, but downgrades in the tech sector might be offset by banking, financial services and insurance (BFSI) upgrades, and automobiles. Overall, a moderate quarter is anticipated. Growth might have bottomed out compared to the previous quarter, but significant surges aren't expected yet," said Goel.

Gaurang Shah, senior vice president at Geojit Financial Services, finds it difficult to upgrade or downgrade Nifty​.

"It's better to take a look at more durable long-term numbers and then take a call as to where ​​Sensex and​ ​Nifty are ​headed in terms of ​upside, ​given the potential of delivering in terms of long-term earnings from various sectors," said Shah.

Shah expects the new financial ​year to start with decent​ earnings growth, possibly giving a positive outlook with​ the rest of the numbers coming through in terms of ​Q2, Q3, and Q4.

Shah puts more emphasis on the upcoming budget.

"If the finance​ minister has some better things to deliver in the Budget in terms of better earning visibility, then that may be an added advantage.​That's why looking at durable long-term earnings rather than ​Q​oQ is better," said Shah.

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