The Q2 earnings season has just begun, but analysts expect a rather muted quarter as key sectors like banking, IT and FMCG may turn in moderate revenue growth. Unhelpfully, the current quarter too doesn’t seem rosy, notwithstanding festive season sales, and the US Federal Reserve’s jumbo 50 bps policy rate cut, which is expected to boost market sentiment. As it is, financial markets are witnessing a meltdown of their own with equities and bonds getting whiplashed across geographies, thanks to geopolitical tensions and unenthusiastic economic data everywhere.
While price rise fears have subsided with headline inflation showing firm signs of easing, rural demand recovery remains weak, and much depends on the southwest monsoon to improve agricultural output, which in turn may revive private consumption. Government spending, which has been holding the fort, too is slowing down, hoping that private investment takes up the baton to kickstart animal spirits.
As for sectors, the biggest setback could come from banks, which barely survived a weak second quarter due to slowdown in loan disbursements. Sadly, it may have to live with subdued numbers during the current quarter amid worrisome asset quality metrics, which even the RBI has flagged. Likewise, brokerages expect Indian IT companies to report single-digit revenue growth -- which has been the case for sometime now -- in Q2.
However, companies are optimistic that the Fed’s 50 bps rate cut will boost discretionary spending and revive fortunes sooner or later. Lastly, FMCG companies, which too are likely to report single-digit volume growth in Q2, are hoping for a better Q3. Traditionally, the third quarter has consistently been the strongest owing to festive season spending, but whether it translates to a full-fledged recovery remains unclear.
A good earnings season confirms brighter economic prospects, and though the first two quarters of the current fiscal haven’t seen robust growth, the overall fiscal performance may still turn out to be fine, provided the next two quarters make up for the lost momentum.
While domestic conditions are conducive, geopolitical tensions and economic uncertainties may upset India’s growth projected at 7.2% for FY25. And given the rising hostilities in the Middle East, which could heighten supply chain risks, set fuel prices on fire and further dampen global growth prospects, the overall FY25 outlook, yet again, teeters between uncertainty and hope of a growth recovery.