Foreign investors have pulled out of Indian stocks at a record pace, pushing the benchmark Nifty 50 towards its worst year in 15 years. While a weakest-in-a-decade monsoon has raised rural demand concerns, the Middle East conflict has fuelled inflation concerns globally, raising the risk premium on emerging market economies and equity markets.
However, "resilient domestic demand in Q2, early festive inventory build-up, favourable pricing in selective commodity-linked sectors should continue to support earnings growth," said J.P.Morgan analysts led by Rajiv Batra.
Nifty 50 firms' net profit is forecast to rise about 20% year-on-year on average, based on brokerage estimates. In April-June, it hit a 10-quarter high of 18% following three quarters of low-single-digit growth.
Motilal Oswal is the most optimistic, forecasting a 27% increase in net profit, which would be the fastest in 17 quarters.
The broker is bullish on automobiles and new-age tech platforms, picking the likes of Meesho, PhysicsWallah, Mahindra & Mahindra and TVS Motor, on structural growth trends, recovering discretionary demand and expanding product portfolios.
PhillipCapital expects a modest 13% rise, reflecting margin pressure and a less favourable mix outside the oil and gas sector.
Tata Consultancy Services will kickstart the earnings season on Friday.
Sector Watch
Most analysts back financials to be the principal earnings anchor, with healthy loan growth, lower credit costs and fewer loans turning bad at banks."Following the Reserve Bank of India's rate hike and its shift to a 'calibrated tightening' stance, we expect large private banks to see further earnings upgrades," said J.P.Morgan.
Multiple brokerages say earnings from ICICI Bank, State Bank of India and Bajaj Finance would stand out.
Effects of the US-Iran war, now in its eighth month, are likely to be felt sharply across automobiles, energy and consumer goods, as oil from the region struggled to get through to India, the world's third-largest crude importer, raising costs.
Automobile retail sales rose during the quarter on improved product mix, pricing and tax cuts.
However, Kotak Institutional Equities expects commodity headwinds to drag operating margins.
Higher crude prices are likely to favour upstream and oil-to-chemicals companies, while pressuring oil marketing firms.
Oil-to-telecom conglomerate and operator of the world's largest refining complex, Reliance Industries, is expected to benefit from this, tiding over a relatively softer retail performance.
IT demand may remain subdued as clients delay non-essential spending amid AI-driven pricing pressure.
"We expect management commentaries to reflect the multi-pronged challenges the sector faces - geopolitics, weak macro and AI threat," Nuvama said.
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