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Motilal Oswal Report
The corporate earnings scorecard for Q2 FY25 has shown weakness, but excluding commodities, it has been broadly in line. Consumption has emerged as a weak spot, while select segments of banking, financial services and insurance are experiencing asset quality stress. Weakness in government spending has also been one of the factors driving moderation in earnings.
After a flat H1 FY25, as the government spending revives in H2 FY25, this should augur well for corporate earnings along with a good kharif crop and improving rural demand. Nifty FY25 EPS has seen another 1% cut after a 4% cut in Q2 FY25 preview. Overall, Nifty EPS has seen ~7% downward revision in the last six months, which has reduced the expected FY25 earnings growth to just 5%, the weakest since FY20.
The Nifty is trading at a 12-month forward P/E of 20 times, near to its long-period average of 20.5 times. Despite the recent 10% correction from the highs, the broader markets are still trading at expensive valuations (NSE Midcap 100 at ~29 times forward P/E).
We had made several significant changes in our model portfolio in the Q2 FY25 preview, where we raised the weights in BFSI, Technology, and Healthcare with a distinct bias towards large-caps.
Our model portfolio reflects our conviction in domestic structural as well as cyclical themes. We are over weight on IT, Healthcare, BFSI, Consumer Discretionary, Industrials, and Real Estate. In contrast, we are underweight on Metals, Energy, and Automobiles.
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