Earnings growth moderates, macro positives persist
For Q1FY25, topline growth at Nifty (ex-financials) came in tepid at 5.7% YoY with EBITDA margins moderating 20 bps QoQ & 90 bps YoY to 18.5%, resulting in flattish PAT on YoY basis. The moderation of earnings growth for the quarter was on expected lines; albeit on a high base. Oil & gas space especially OMCs impacted earnings, amidst muted GRM margins on the refining side. Interestingly, broader markets earnings outperformance trend continued with mid & small caps reporting better earnings growth than headline Nifty index. For Q1FY25, Nifty PAT growth (including financials) came in at 5% YoY while the same for mid-cap universe stood at 12.5% and small-cap universe stood at 21.4%. For listed companies all-together, PAT growth stood at 8.8% YoY.
On macro-economic front positives persist, GDP growth surprised positively and came in at 7.8% for Q4FY24 and 8.2% for FY24. Globally, interest rate cycle is about to get reversed with some major central banks already announcing rate cuts. Domestic inflation is also contained with recent CPI print at 3.5% for July’24. Government too talked the talk on its path of fiscal consolidation, with pragmatic Budget 2024-25 and fiscal deficit pegged at 5.6% for FY24 and 4.9% for FY25E. With underlying positive macros, stable commodity prices & resilient corporate earnings, we retain our positive stance on domestic markets. We believe any dips should be used to build a long-term portfolio of quality stocks.
Incorporating revised earnings, our estimates don’t undergo any major change. We value Nifty at 27,500 i.e. 22x PE on FY26E, offering healthy 12% potential upside. This is our 12 months rolling target. We are upgrading our PE valuation multiples to 22x vs. 20x earlier amid greater macro-economic stability, firm political mandate, thrust on policy continuity & further attractiveness of equity as an investment class vs. peers. Decline in interest rates will be further positive.
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