The ongoing second quarter earnings season, which has now passed its midpoint, paints a bleak picture for India Inc. Data shows 309 companies in the Nifty 500 index reported a combined 3% decline in net profit consolidated for the quarter ending September 2024, while gross sales saw a 3% decline. a modest increase of 7% to date. Some analysts also suggest that India Inc.’s actual performance is lower than expected.

Across all sectors, weaknesses are evident, although industrials, big finance, infrastructure, pharmaceuticals and telecommunications have performed relatively well. On the other hand, the FMCG, automobile, cement, IT, metals and energy sectors showed the weakest performance. Within FMCG, Nestle reported a 0.9% decline in net profit at ₹899.49 crore for the second quarter of FY25, while ITC clocked a growth of nearly 2 % of its net profit, reaching ₹4,992.87 crore during the quarter under review.

Summarizing key insights from the second quarter results, Himani Shah, co-fund manager at Alchemy Capital Management, noted: “Consumption remains weak, with manufacturing and investment also experiencing a cyclical slowdown. The EMS (electronic manufacturing services) and pharmaceutical sectors comparatively outperformed. We believe that after the Maharashtra state elections in November 2024, public and private investments could see a sharp increase.

Jathin Kaithavalappil, Assistant Vice President of Choice Broking, added: “Over the past three years, we have seen robust growth, with GDP growing by 7% and profits by 20%, fueling a strong market recovery. . However, profit growth in the first quarter of FY2025 was modest and in the second quarter, even with contributions from banks, profit growth remained stuck at 0%. It appears the market is moderating its expectations, pricing in likely flat to weak earnings growth for the third and fourth quarters.

Despite these challenges, the benchmark stock index NSE Nifty50 has gained nearly 8% in the current financial year as of November 5, 2024.

Shah of Alchemy Capital Management predicts that government capital expenditure (capex) could accelerate after the November national elections. The investment-to-GDP ratio returned to 31% in FY24, and corporate balance sheets are strong, with low debt ratios and high returns on equity. According to RBI data, high capacity utilization suggests potential for private sector investment growth.

Vinod Nair, Head of Research at Geojit Financial Services, highlighted, “The Q2 preview was weak and the actual performance was below expectations. » He expects better results in the third quarter than in the second, supported by a rebound in public spending, which had slowed during the 2024 national and regional elections.

“A decline in global inflation could benefit Indian companies which faced a contraction in EBITDA in the first half due to high inflation and reduced realizations. However, the resumption of business activity is expected to be gradual, given the sluggish global and urban demand,” Nair added. Choice Broking’s Kaithavalappil warned that third-quarter earnings growth is expected to remain almost flat.