Q1FY25 Review: Nifty 50 delivers first single-digit EBITDA growth in four years; Auto, banks lead the pack

Q1FY25 Review: Nifty 50 delivered a four per cent year-on-year (YoY) growth in the April-June quarter of fiscal 2024-25 (Q1FY25), slightly higher than most D-Street estimates. At five per cent, the NSE benchmark reported the first quarter of a single-digit EBITDA growth in four years in the quarter under review. The last time when the benchmark posted a single-digit EBITDA growth was in September 2020.

According to domestic brokerage Motilal Oswal Financial Services, the net profit of four per cent is the lowest since the COVID-19 pandemic quarter (June 2020). The overall growth in the first quarter of the current fiscal was primarily propelled by domestic cyclicals. The notable contributions were witnessed from the healthcare, real estate, capital goods, and metals sectors.

The aggregate performance was hit by a drag from oil marketing companies (OMCs).  Five Nifty companies – HDFC Bank, Tata Motors, ICICI Bank, Maruti Suzuki, and TCS – contributed 127 per cent of the incremental YoY accretion in earnings. Conversely, BPCL, JSW Steel, ONGC, Reliance Industries, and Grasim Industries contributed adversely to the Nifty earnings.

Earnings growth continues to be led by Auto, Banking…

Elara Auto universe surpassed expectations by 6ppt, with most companies, except for commercial vehicles and tire plays, seeing a decent YoY growth. The Banking sector modestly exceeded tempered expectations despite facing headwinds. However, challenges persist with sluggish deposit momentum exerting pressure on net interest margins (NIMs) and signs of moderation in the unsecured loan segment.

…but new leaders emerging

The long-anticipated rural consumption recovery shows promising signs for the FMCG sector. While FY24 earnings growth was driven by price increases, volume-led growth is expected to be the norm going forward. Although rural growth still lags urban on two-year CAGR basis, it has picked up YoY while urban growth has slowed.

For Pharma, earnings growth of ~28% YoY marginally exceeded projections, but performance varied across the sector. The US generics business remains the primary growth driver, even as CDMO companies face persistent challenges. Major hospital chains showed early signs of growth deceleration and margin pressure.

Energy / Metal / Cement sectors face margin strain

Commodity-oriented sectors experienced a modest topline growth but saw earnings decline by ~27% owing to margin pressure. Elara Energy universe faced a 31% YoY earnings drop, attributed to lower gross refining margin, decreased retail diesel margin for oil marketing companies (OMCs), and weaker performance in Reliance Industries’ (RIL) oil-to-chemicals segment. Steel and Cement companies were hit by weak hot rolled coil prices and cement prices respectively.

Positive on Auto, Capital Goods, FMCG, Energy, Pharma, Real Estate

Valuations remain the focal point, with indices trading at premium levels, sustained by strong earnings delivery. While the banks do face pressure, this is largely priced in. The outlook for Capital Goods and Infrastructure remains positive as election-related softness subsides. Above-average monsoons align with IMD forecasts, potentially boosting rural consumption and benefiting FMCG and small-ticket white goods sectors.

We maintain our positive stance on Autos, Capital Goods, FMCG, Energy, Pharma, and Real Estate. Our outlook is negative for Cement, Chemicals, and Metals, while remaining neutral for other sectors.