Q3 earnings preview: Worst may be behind, but are we in for a stellar show? | Stock Market News

Indian corporates have reported subdued quarterly earnings in the current financial year (FY25). The June quarter (Q1) results were weak, and the September quarter (Q2) numbers were even weaker, triggering a significant market correction as valuations were trading at a premium.

Hopes of a revival in the earnings trend from the December quarter (Q3) remain faint, and experts caution that investors anticipating a strong recovery in Q3 may be setting themselves up for disappointment.

Companies across segments reported weaker sets of numbers in Q2. According to brokerage firm JM Financial, 45 per cent of companies within its coverage universe missed earnings estimates.

Experts expect some improvements in some sections, especially banking and IT, but they downplay the expectations of a significant revival.

Q3 earnings: Fireworks unlikely

“Q3 is also going to be mainly subdued. Some improvements could occur in some pockets, but an outright reversal is unlikely. Significant improvements could be seen from Q4 onwards,” said Ajit Mishra, SVP of research at Religare Broking.

According to the estimates of brokerage firm Antique Stock Broking, Nifty 50 companies, excluding financial, telecom, cement and commodity, may report revenue, EBITDA and PAT growth of 10 per cent, 8 per cent and 6 per cent year-on-year (YoY), respectively, in Q3FY25.

Antique believes the overall margin will likely remain flat at 20.4 per cent. Among sectors, the brokerage firm expects strong operating profit growth in agrochemical, PSU banks, oil marketing companies (OMC), consumer durables, industrial and retail. However, cement, paint, infrastructure, private banks and FMCG are likely to be laggards.

Vaibhav Porwal, the co-founder of Dezerv, underscored that corporate profit margins came under pressure in Q2FY25 and will likely persist in Q3FY25.

Porwal has a positive view of export-oriented businesses that stand to gain from a strong dollar.

“BFSI, export-oriented sectors, and lifestyle sectors like hotels, travel and consumer discretionary are expected to deliver robust earnings growth in Q3FY25,” said Porwal.

Pawan Parakh, a fund manager at Geojit Financial Services, said Q3 earnings may be a bit soft overall.

Parakh underscored that the economy is experiencing a cyclical slowdown driven by multiple factors, the most important of which is muted government spending.

“Due to central and state elections, the spending has picked up with a lag from December 2024 onwards. Against this backdrop, one should not expect too many fireworks from corporate India in Q3FY25,” said Parakh.

However, Parakh pointed out that the commentary on the outlook would be very important because consensus estimates are building in recovery in earnings growth from Q4 onwards.

Parakh believes the IT and technology sectors could see an upgrade in earnings.

“We believe IT spending is on the cusp of recovery, and a more stable geopolitical environment under the new US president would augur well for the IT services sector. Most of the listed tech companies are in a phase past their investment period and are now reaping the benefits of operating leverage. These companies have the potential to surprise on the positive and can see an upgrade in earnings,” said Parakh.

“Value fashion and retail have continued to surprise on the positive, and we believe this trend could continue, leading to an upgrade in earnings estimates,” Parakh said.

On the other hand, Mythili Balakrishnan, co-fund manager at Alchemy Capital Management, believes earnings have bottomed out in Q2FY25 and are set to accelerate from Q3FY25 onward.

Balakrishnan anticipates potential upgrades for companies that benefited from a strong wedding season, such as those in the liquor, hospitality, and export-oriented sectors, particularly due to favourable rupee movement. Additionally, the defence sector may benefit from increased government spending.

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