Q2FY25 Review | 45% of companies miss estimates; small and midcaps face larger EPS cuts: JM Financial

Indian Inc reported a disappointing performance for the September quarter (Q2FY25), with several companies posting weaker-than-expected results. This underwhelming performance triggered a sharp selloff in the equity markets, raising investor concerns about a potential slowdown in the Indian economy.

The weak earnings have also dampened the sentiment of overseas investors, who have turned increasingly bearish on the Indian market. Foreign portfolio investors (FPIs) have been relentlessly pulling out funds in recent months, signalling declining confidence in the country's economic growth prospects.

The combination of weak corporate earnings and sustained FPI outflows has intensified market volatility, pushing frontline indices into correction territory and driving them to trade at multi-month lows.

Furthermore, brokerage firms have lowered their earnings estimates and target multiples for the majority of stocks, adding another layer of uncertainty to the markets, and contributing to a sharp erosion in investor wealth. 

Nearly half of companies miss estimates

JM Financial's analysis of Q2FY25 results shows that 45% of companies within its coverage universe missed earnings estimates.

"We have analysed the results of 227 companies (out of the 275 company JM Financial coverage universe) and come to the conclusion that 45% of companies have missed estimates," said the brokerage. 

The report underlined significant underperformance in sectors such as MFIs and Oil Refining & Marketing, where all companies failed to meet expectations. Similarly, sectors like Consumer Durables, SFBs, Auto OEMs, City Gas Distribution, Telecom, Building Materials, and Retail saw a high number of earnings misses, reflecting broader challenges.

On the other hand, PSU Banks, aided by lower credit costs, and Steel and Mining, benefiting from favourable raw material prices, showed robust results, with over 70% of companies beating estimates. The Internet and Pharma sectors also performed well, it added.

The brokerage has also analysed consensus EPS and target price revision post results for its universe of 275 companies. It found that 66% of companies experienced EPS downgrades for FY25, with 40% seeing cuts exceeding 3%, 29% over 5%, and 18% more than 10%. Additionally, 45% of companies faced reductions in target prices post QFY25 results.

Midcap and small-cap firms were particularly affected, with 17% of midcaps and 23% of small caps seeing EPS cuts above 10%, compared to only 10% for large caps.

"There is a slowdown in urban demand across FMCG, retail, auto, and mall operators. Besides this, chemicals, consumer durables, and building materials have seen a moderation in demand. MFIs, select private sector banks, and NBFCs are witnessing stress in their unsecured books," said JM Financial.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.