Analysts at Nomura say that the sluggish earnings growth in the September 2024 quarter (Q2-FY25 / Q3-CY24) is not unique to India and has been the case for the majority of Asia ex-Japan (AeJ) economies in the previous quarter.
At the AeJ level, the September 2024 quarter results season has been subpar, with more misses than beats. On a weighted basis, though, the season is not as dismal as the mere beat-miss ratio would imply. In a recent report, Chetan Seth, Ankit Yadav, and Anshuman Agarwal of Nomura stated that large-cap index companies, particularly those in MSCI China, have enjoyed a strong results season thus far.
The September 2024 quarter results of 48 Indian businesses covered by Nomura that are also included in the MSCI indices and have at least three analyst estimations failed forecasts or estimates, while 29 topped earnings estimates and 10 announced in-line statistics.
The beat-miss ratio (number of companies that beat the forecast minus the number of companies that missed, represented as a percentage of the overall sample) is among the lowest in Asia-exJ at -22 percent, which is the only consolation for India, according to Nomura data.
On a simple count basis, AeJ's beat-miss ratio indicates more misses than beats overall, but large-cap tech results in China have consistently exceeded expectations. According to the Nomura study, MSCI China businesses' earnings revisions are also positive for the quarter to date (QTD), with CY24 adjusted earnings up 1.7%.
According to G Chokkalingam, founder and head of research at Equinomics Research, high interest rates combined with sticky inflation that caused an overall economic downturn have been the culprit that has hurt profits in the majority of Asian countries.
“Most Asian economies had to deal with multiple pain points in the last few months – starting with high interest rates, elevated inflation, geopolitical issues that led to an overall economic slowdown. Demand was affected by all of this, which in turn affected corporate profitability in the majority of Asian businesses and stock markets," he said.
Meanwhile, the Nifty 50 index at the bourses has dropped about 11% from its peak. According to data, the decline in mid- and small-cap stocks has been more pronounced, with both indices falling by about 11% apiece.
Although Nomura analysts anticipate that the Asian markets will recover from their present oversold levels, domestic analysts do not anticipate that the recovery will persist long because FIIs will still be selling. According to V K Vijayakumar, chief investment strategist at Geojit Financial Services, a prolonged market rebound is only possible if earnings rise.
"One key lesson to be learned from the current market pattern is that a swift and dramatic rebound is not imminent. The market no longer has the momentum that propelled it to its September record high of 26,216 levels. Given the FII selling and worries about the modest earnings growth anticipated in FY25, there may be recoveries that are unlikely to last. The market might, at most, sideways move and consolidate around the current levels," he stated.
In the meantime, a JM Financial note states that 65% of the companies they cover witnessed a decrease in FY25 profits per share (EPS), and 45% of the companies' stocks saw a decrease in target price following their Q2-FY25 results.
According to the note, "for FY25, a larger percentage of small and midcaps (SMIDs) witnessed EPS cuts (of over 0%, 3%, 5%, and 10%), and a larger percentage of SMIDs saw over 10% EPS cuts."
