Market Strategy: Embrace Volatility & Buy on Dips Amid Q2 Slowdown – Expert Insights from Seshadri Sen

Baishakhi Mondal

Published on:

Market Strategy: Embrace Volatility & Buy on Dips Amid Q2 Slowdown - Expert Insights from Seshadri Sen

In the second quarter of FY25, corporate earnings are set to display muted growth amidst significant disparities across sectors. Analysts suggest that while the aggregate net profit growth for Nifty could be restricted to around 5%, certain sectors, including Materials, Energy, and Financials, are expected to hinder this growth trajectory. Conversely, other sectors are anticipated to witness robust high-teen growth rates.

For Experts Recommendation Join Now

According to Seshadri Sen, the Head of Research and Strategist at Emkay Global Financial Services Ltd, the forecast for FY25 Nifty Earnings Per Share (EPS) growth stands strong at 15.9%. Sen predicts ongoing market volatility for the next few quarters, advising long-term investors to opportunistically buy during these periods of weakness with an investment horizon exceeding two years.

Q2 Earnings Overview

The expected topline growth for companies within the Emkay Global universe is projected at a modest 3% year-on-year (YoY), accompanied by nearly stagnant net profit growth. This performance is primarily influenced by challenges faced by cement companies and energy firms, the former being affected by unusual seasonal patterns and the latter by high comparisons from the previous year.

Sen notes, “Our analysis reveals that while cement and Energy sectors are pulling down the overall performance, the remainder of our analyzed universe showcases a healthier 7.7% YoY topline growth, alongside a notable 12.7% YoY Profit After Tax (PAT) growth.”

Also Read | Q2 FY25 to Witness Slowest Earnings Growth for Nifty Companies in 17 Quarters: MOFSL

The consensus Nifty estimates also reflect a similar trend, expecting a 3% contraction in topline revenue alongside a projected 9% growth in net profits. Despite sluggish revenues, income margins are predicted to rise by 140 basis points to 20.2% for Nifty 50 companies, excluding Banking, Financial Services, and Insurance (BFSI) entities.

The consensus Nifty FY25 EPS remained stable at ₹1,134, showcasing a year-on-year growth of 15.9%, regardless of the weak headline performance in the first half. Approximately 67.5% of the top 350 companies monitored by Emkay were found to be in the stable EPS forecast range (-5% to +10% change) for 2QFY25, compared to 65.4% in Q1FY25.

Sen believes there are two significant downside risks to earnings: crude oil prices remaining at or above $80 per barrel, and a 50 basis points cut to the RBI repo rate in Q3FY25, both of which put bank earnings under pressure.

Sectoral Analysis: Winners and Losers

In terms of sector performance, Consumer Discretionary and Industrials are expected to report relatively strong numbers for Q1, although this is largely anticipated and already priced into the market. The commentary and forward guidance from these sectors will likely hold more significance than the actual earnings reports for Q2FY25, as per insights from Emkay Global.

Materials (especially cement), Energy, and Financials are projected to emerge as the key negative outliers in this quarter.

Also Read | TCS Q2 Results Preview: Net Profit Expected to Rise by 4%, Revenue to Grow by Over 2% QoQ

Companies like Hindustan Unilever, select oil marketing firms, and certain mid-cap IT players, such as Eclerx Services, may see positive market reactions following their results. In contrast, Tata Consultancy Services (TCS), Aditya Birla Fashion and Retail, and Zee Entertainment Enterprises (ZEEL) might be susceptible to post-earnings corrections, Sen remarked.

Market Outlook

The outlook for the Indian stock market remains rangebound amid increased volatility. Emkay Global indicates that the upside is capped by current valuations, with their target for the Nifty 50 set at 26,000 by September 2025, reflecting less than 5% potential upside from current levels.

According to Sen, the downside is buffered by steady earnings growth and unprecedented macro-financial stability. The current market decline is expected to not translate into significant corrections for broader indices. Major risks include potential oil shocks arising from Middle-Eastern conflicts and a diversion of foreign portfolio investment flows to China, which Sen considers transient issues.

Also Read | Experts Highlight India’s Outperformance Amid Crude Oil Correction: Sectoral Focus Suggested

RBI Policy and Its Impact

On October 9, the Reserve Bank of India (RBI) decided to maintain the benchmark repo rate at 6.5%, adjusting the policy stance to ‘Neutral’ from ‘Withdrawal of Accommodation’.

Sen remarks that the RBI’s decision to hold rates will have minimal impact. However, he perceives the shift in the liquidity stance as a favorable sign, anticipating the onset of an easing cycle in the forthcoming December MPC meeting.

Also Read | Highlights from RBI Monetary Policy Meeting: Tone Set for Possible Rate Cuts

“The interim period characterized by easier liquidity and steady rates is beneficial for banks, as it helps manage liabilities without instantly necessitating cuts in loan yields. Stocks may react favorably if the market perceives delays in rate cuts, particularly benefiting large banks like HDFC Bank. However, we view this as a short-term trading opportunity and recommend using it to reduce positions in the BFSI sector,” advises Sen.

In the broader market context, he opines that the anticipated easing cycle is already reflected in current prices, leaving little room for dramatic movements.

Stay Updated with TCS Q2 Results Live Updates Here

Disclaimer: The opinions and recommendations expressed in this article are those of individual analysts or brokerage firms and do not reflect the views of the publisher. We encourage investors to consult with certified experts prior to making any investment decisions.

Share This ➥
X