New Delhi [India], November 17 : After a challenging first half of financial year (FY) 2025, the corporate earnings outlook is likely to improve in the second half as the government spending, robust Kharif crop and improving rural demand is set to revive, Motilal Oswal said in a report.
"After a flat 1HFY25, as the government spending revives in 2HFY25, this should augur well for corporate earnings along with a good kharif crop and improving rural demand," the report added.
The corporate earnings in the second quarter witnessed a subdued picture, particularly weighed down by the commodities sector.
Excluding this segment, however, earnings were broadly in line with expectations. The consumption sector witnessed a challenge and emerged as a major weak spot. The BFSI (Banking, Financial Services, and Insurance) space in the second quarter witnessed asset-quality stress.
The report points out that the level of government spending has been a critical factor that impacted corporate earnings of the companies.
Flat spending in 1HFY25, along with excess rainfall disrupting demand in rural and semi-urban markets, has led to earnings moderation. However, a reversal of these trends in the latter half of FY25 is expected to fuel recovery, it added.
In its analysis, Motilal Oswal says that Nifty's FY25 EPS saw a further 1 per cent cut following a 4 per cent reduction during the 2QFY25 earnings preview.
Over the past six months, the expected FY25 earnings growth has been revised down by approximately 7 per cent, bringing the projected growth rate to a modest 5 per cent, the weakest since FY20.
It further added that despite a recent 10 per cent correction from market highs, valuations remain a concern. The Nifty currently trades at a 12-month forward price-to-earnings (P/E) ratio of 20 times, close to its long-period average (LPA) of 20.5 times.
Broader markets, however, appear more stretched, with the NSE Midcap 100 index trading at a forward P/E of around 29 times.
In Q2FY25, the performance of different sectors reflects a mixed bag. Weakness in the commodities sector played a significant role in the muted overall earnings.
The consumer demand showed signs of fatigue, especially in discretionary spending categories.
On the other hand, select segments of the BFSI sector grappled with asset-quality challenges, indicating pockets of vulnerability despite broader sectoral resilience.