Q2FY25 earnings season brought caution to markets, with 44% of companies covered by JM Financial missing earnings expectations, signaling broad challenges across sectors .

Of 157 companies analyzed, only 41% reported results that beat estimates, while 15% met expectations.

The results highlighted several headwinds, including a notable slowdown in urban demand, high credit costs and margin pressures affecting key sectors such as FMCG, automotive, oil refining and oil and durable consumer goods.

Sector Highlights and Top Mistakes

BFSI (banking, financial services and insurance): Public sector banks (PSUs) performed strongly on strong recoveries and lower credit costs, with Bank of Baroda and Punjab National Bank beating expectations. At the same time, microfinance institutions (MFIs) and some non-banking financial companies (NBFCs) have faced significant pressures from high credit costs. CreditAccess Grameen and Muthoot MicroFin fell short of their targets due to higher provisioning costs and slower growth, reflecting continued challenges in managing unsecured loans.

FMCG and retail: Urban demand has weakened in large FMCG companies, impacting revenue growth and profitability. For example, Hindustan Unilever experienced moderation in demand, particularly in discretionary segments, resulting in performance as expected. However, Godrej Consumer managed to beat expectations on the back of higher revenues from other sources and lower financing costs. In the retail sector, Avenue Supermarts missed its profit targets as competitive pressures reduced its margins, while companies like Go Fashion and Restaurant Brands India enjoyed stronger margins and others income gains.

Also read: SBI Q2 Results: Net Profit Helped by Higher Other Income; Asset quality improves

Auto and auto accessories: Original equipment manufacturers (OEMs) such as Maruti Suzuki and Bajaj Auto have been facing unfavorable raw material costs and unfavorable product mixes, leading to disappointed expectations. In contrast, automotive ancillary companies are faring better, with companies like Sona BLW Precision Forgings and SJS Enterprises surpassing targets thanks to strong revenue growth and better operating leverage. Players in the automotive ancillary sector benefited from diversified exposure, helping to offset some of the slowdown in the OEM sector.

Chemicals: The chemical sector recorded significant shortfalls, due to sluggish demand and high inventory levels with customers. Companies like PCBL and Tatva Chintan Pharma Chem faced inventory issues and pricing pressures, while Aether Industries beat expectations due to an increase in contract manufacturing revenue.

Oil refining & marketing and city gas distribution: The oil refining sector, with companies such as Bharat Petroleum and Hindustan Petroleum, has generally disappointed expectations due to weak gross refining margins (GRM) and persistent under-recovery of LPG. The city gas distribution (CGD) sector was also hit with Mahanagar Gas failing to meet its targets due to rising gas costs and lower realisation.

Read also: Vedanta’s second quarter results: lower taxes favor return to profitability, revenues fall 3.4%

Durable consumer goods: Consumer durable goods companies have been grappling with weak demand and rising input costs. Companies like Voltas and Havells missed their forecasts due to high raw material prices, increased advertising spend and regulatory challenges, such as BIS compliance. However, EMS companies like Dixon Technologies outperformed thanks to strong mobile volumes and contributions from recent acquisitions.

Construction and industrial materials: This sector has been facing margin pressure as unorganized players adopted aggressive pricing, impacting companies like Kajaria Ceramics and Somany Ceramics. Additionally, supply chain constraints and customer destocking have created operational challenges for industrial companies, with AIA Engineering failing to meet expectations due to operational deleveraging.