Q2 Outcomes: Jefferies’ Christ Wooden flags steepest FY25 earnings downgrades since 2020

In a current GREED & concern notice, Christopher Wooden of Jefferies Jefferies reported that disappointing outcomes from India Inc. within the July-September quarter prompted the steepest earnings downgrades since early 2020. The brokerage indicated that it revised down its FY25 earnings estimates for 63 % of the 121 firms inside its protection which have not too long ago launched quarterly outcomes.

This earnings downgrades underscores challenges stemming from a cyclical financial slowdown. Regardless of the short-term headwinds, Jefferies stays cautiously optimistic, sustaining a long-term bullish outlook on India’s fairness market.

Earnings Downgrades Amid Financial Challenges

Based on Jefferies, 63 % of the 121 firms that reported September quarter outcomes skilled a reduce in FY25 earnings per share (EPS) estimates. This broad-based discount displays a slowing financial surroundings, supported by Jefferies’ India workplace’s high-frequency information. The Jefferies Financial Indicator (JEI), which tracks the Indian financial system utilizing 35 month-to-month information factors, rose by 4.3 % year-on-year in September—an enchancment from the three-year low of two.6 % in August however nonetheless 0.6 proportion factors under the year-to-date common.

Jefferies now initiatives that Nifty 50 firms’ earnings will develop by solely 10 % in FY25, indicating cautious sentiment in regards to the near-term financial trajectory.

Inventory Market Correction and Sectoral Traits

Wooden famous that the Indian inventory market has not too long ago skilled a wholesome correction, significantly throughout the small- and mid-cap segments. This adjustment got here amidst Q2 earnings season downgrades, the most important since early 2020. He considered this correction as a constructive improvement, because it primarily affected overvalued areas of the market, whereas comparatively undervalued non-public sector banks have began to point out outperformance. Expectations of a possible money reserve ratio (CRR) reduce by the Reserve Financial institution of India (RBI) within the coming months have supported this development.

Jefferies’ banking analyst, Prakhar Sharma, prompt that the RBI’s shift from a liquidity withdrawal stance to a impartial place ought to ease considerations surrounding financial institution efficiency. Credit score and deposit progress charges, which had a peak hole of 400 foundation factors over the previous yr, have now aligned. This alignment, alongside improved deposit progress and extra manageable liquidity circumstances, is predicted to bolster banks’ web curiosity margins.

Overseas Promoting Strain and Market Outlook

Jefferies identified that international investor exercise has been a key stress level for the broader inventory market. October noticed important promoting from international funds, amounting to just about $11 billion, contributing to the Nifty 50’s 6.2 % decline, its worst month-to-month efficiency since March 2020. Regardless of this, the index has nonetheless managed an 11 % achieve for the yr to this point.

Jefferies highlighted that robust home inflows into fairness mutual funds have persevered, with present home flows nonetheless outpacing the rising fairness provide as firms capitalize on excessive valuations.

Cautious Optimism and Fairness Provide Traits

Jefferies’ up to date technique on Indian equities is marked by cautious optimism. Whereas earnings progress considerations and international outflows might stress the market within the brief time period, home investor participation stays strong. Notably, the availability of equities has risen to roughly $7 billion per 30 days, accumulating to about $60 billion year-to-date. This has began to match the robust home demand, signaling a extra balanced market.

Lengthy-Time period Bullish Outlook on India

Regardless of present challenges, Jefferies maintains a bullish long-term view on India. The funding financial institution reiterated its forecast of India reaching a $10 trillion fairness market capitalization by 2030. Aashish Agarwal, head of Jefferies India, emphasised that whereas present valuations seem steep, they replicate India’s robust progress visibility. He credited the emergence of retail traders for bolstering home markets, noting that many international traders might discover India costly as a consequence of analyzing legacy sectors corresponding to financials, shopper staples, and tech providers.

Agarwal identified that the following part of progress can be pushed by sectors corresponding to infrastructure, manufacturing, hospitals, and transport hubs like ports and airports. He argued that these areas nonetheless have important progress potential and aren’t but overvalued.

Jefferies’ newest notice underscores the challenges dealing with India’s fairness market as a consequence of earnings downgrades and a cyclical slowdown. Nevertheless, the funding financial institution’s cautiously optimistic stance is strengthened by robust home participation and potential shifts available in the market’s sectoral drivers. Whereas short-term volatility stays, Jefferies’ long-term outlook anticipates substantial progress.

Disclaimer: The views and suggestions made above are these of particular person analysts or broking firms, and never of Mint. We advise traders to examine with licensed consultants earlier than taking any funding selections.