Q2 Earnings Preview: Insights from Macquarie Equity Research
The Q2 earnings monitor report from Macquarie Equity Research has raised concerns about the increase in the number of companies reporting earnings that fall short of expectations. This trend mirrors what was observed in the first quarter, particularly affecting sectors like Consumer Discretionary, Materials, and Financials. As market participants prepare for the upcoming earnings reports, the implications of these trends will be closely monitored.
Overall Earnings Outlook
Despite the challenges faced by many sectors, Macquarie maintains a positive stance on overall earnings growth. The firm projects a steady two-year earnings per share compound annual growth rate (EPS CAGR) of approximately 15% for MSCI India. However, it’s noteworthy that the outlook for India’s EPS growth has turned neutral when compared to emerging markets, signaling a shift from the standard premium of +400 basis points usually observed. Conversely, the growth premium relative to China remains stable and aligned with averages tracked since 2010.
Revenue Projections and Sector-Specific Insights
Looking ahead, Macquarie anticipates limited positive surprises in revenue across various sectors. While significant upward revisions aren’t expected, there is a slight glimmer of hope for improvements within the IT and Healthcare sectors. In particular, the brokerage is optimistic about potential margin gains in IT but remains cautious regarding the anticipated operating leverage for the Autos and Industrials sectors, which may not see the levels of growth previously expected.
Detailed Sector Expectations for Q2
Financials Sector
Within the Financials sector, Macquarie foresees that bank net interest margins (NIMs) will either stabilize or experience a slight decrease. Credit costs are likely to remain consistent with those observed in the first quarter, with an exception for Axis Bank, which might face different dynamics. Moreover, Non-Banking Financial Companies (NBFCs) are projected to experience a slowdown in growth, prompting a focus on commentary regarding unsecured lending and asset quality. The Insurance sector is expected to encounter ongoing challenges, with a marked reduction in the Value of New Business (VNB) growth due to persistent margin pressures.
Consumer Sector Outlook
Shifting attention to the Consumer sector, Macquarie predicts a low single-digit volume growth for most consumer staples during the second quarter of FY25. This outlook is informed by pre-quarterly updates and dealer checks that highlight a sluggish recovery in rural segments, compounded by reduced growth in specific sectors affected by flooding. Within the automotive sector, two-wheelers are expected to outperform passenger vehicles (PVs). The upcoming festive season will be pivotal for PV sales, with concerns that high post-festive inventory levels may lead to increased discounting in the third quarter.
IT Sector Predictions
Macquarie projects that substantial growth within the IT sector during Q2 FY25 is unlikely until the new IT budgets are rolled out in January 2025. However, the firm anticipates a notable increase in hiring during Q2 FY25, signaling companies’ readiness to meet anticipated demand for the calendar year 2025.
Conclusion and Investment Considerations
As we approach the Q2 earnings reporting season, the insights offered by Macquarie Equity Research underscore the mixed signals in various sectors. Investors are encouraged to be cautious, particularly in sectors experiencing downward revisions and lower growth expectations. It remains crucial for investors to seek advice from certified experts before making any investment decisions, given the evolving market dynamics.
Disclaimer: The views and recommendations presented above belong to individual analysts, experts, and broking firms and do not necessarily reflect the views of Mint. We strongly advise investors to consult certified professionals before making any investment decisions.
