From 46% to 62%: BSE 500 firms' negative earnings spike in Q1

There has been a sharp rise in negative earnings for the BSE 500 companies, with the ratio jumping sharply from 46% in the March quarter to 62% in the June quarter.

"The Q1 FY25 earnings season was weak, with negative PAT growth. Topline momentum remained "muted" across the board, while energy dragged overall margins. The share of negative surprises spiked," says a research note by brokerage Emkay Global Financial Services.

However, earnings forecasts for the Nifty and the wider universe remained "stable". "Though valuations have moderated after the recent correction, we do not see a decisive short-term up-move unless the earnings upgrade cycle restarts. We, however, remain constructive on the markets from a >1Y perspective," the note says.

On topline pressures, the Emkay report says it'll continue. "PATg for BSE500 slipped, from 12.4% in 4QFY24 to 2.9% in 1QFY25. Topline growth (ex-BFSI) remained weak at 5% YoY, in line with 4QFY24. EBITDA margins fell by 20bps YoY to 15.1%, mostly due to a 388bp contraction for the Energy sector – most other sectors delivered strong margins." The BSE-500 index covers 20 big sectors and represents 93% of total m-cap on BSE.

The report says staples momentum is improving, with the aggregate numbers being skewed owing to the energy sector’s 30% YoY profit drop on a high base. "Staples was an incremental winner, with an acceleration in earnings growth to 13.1% YoY from 8.8% YoY in Q4 FY24. Industrials continued to outperform, maintaining earnings growth at 28%, similar to Q4 FY24 levels. PAT for consumer discretionary and financials decelerated QoQ, albeit still strong at 22.3% YoY and 17.5% YoY, respectively."

On earnings forecasts, the report says despite the rising share of negative surprises, consensus estimates remained rock-steady with both, FY25 and FY25 Nifty EPS estimates, remaining within a 1% band over the earnings season. "The share of companies with stable earnings forecasts (within a +/-5% band) rose to 63% from 58% in 4QFY24, though the share of upgrades fell slightly."

Near-term cues are also mixed. "Weak commodities, a possible US rate cut in September, and a mass consumption recovery are significant tailwinds, but slowing consumption at the premium end remains a worry," the report adds. "The market is fairly valued and a near-term upside would come only if the earnings revision momentum returns. From a >1Y perspective, we are constructive because of continued double-digit earnings growth."