The recent correction in broader markets factors into some of the potential disappointments in earnings ahead. That said, the valuations for mid and small-caps are still expensive vis-àvis their history as well as versus Nifty-50.
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Motilal Oswal Report
The Q3 FY25 earnings are in line with modest expectations; however, forward earnings revisions are the weakest in recent times, with downgrades far outpacing upgrades, especially in our non-Nifty 50 universe. Weakness in consumption coupled with a drag from commodities has put severe pressure on earnings even as BFSI, Healthcare, Capital Goods, and Technology have recorded a healthy print.
After a healthy 55% earnings CAGR over FY19-24 by our banking universe, the tailwind is now tapering off with FY25 earnings growing at a healthy but relatively modest 14%, while FY25-27E CAGR is projected at 12% (within which FY26E growth is estimated at a mere 9%).
The expectations for FY26 corporate earnings (19% for our Universe and 15% for the Nifty-50) are still somewhat elevated, in our opinion, given the underlying macro-micro backdrop and are thus ripe for further downgrades.
The recent correction in broader markets factors into some of the potential disappointments in earnings ahead. That said, the valuations for mid and small-caps are still expensive vis-àvis their history as well as versus Nifty-50.
The Nifty is trading at a 12-month forward P/E of 19.3x, below its long-period average of 20.5x. Thus, we continue to remain biased toward large caps with a 76% allocation in our model portfolio.
We are over weight on consumption, BFSI, IT, industrials, healthcare, and real estate, while we are underweight on oil and gas, cement, automobiles, and metals.
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. Read more on Research Reports by NDTV Profit.Motilal Oswal is over weight on consumption, BFSI, IT, industrials, healthcare, and real estate, while we are underweight on oil and gas, cement, automobiles, and metals. Read MoreResearch Reports
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