Sensex soars 10,000 points from April lows. But India Inc's Q4 numbers expose cracks in market rally

Economic Times

27-05-2025

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Still, risk looms large.
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The Sensex has stormed back with a stunning 10,000-point plus surge since April lows, but Nifty 's Q4 earnings growth is clocking in at under 6% year-on-year, a number that's raising eyebrows among analysts. Even as the market brushes off the disappointment, the current valuations, already hovering at 21-22x forward price-to-earnings, demand a far more compelling earnings story."Q4 earning season is turning out to be muted yet again in absolute terms, with 5-10% earnings growth depending on sectors," Atul Bhole, EVP & Fund Manager, Kotak Mahindra Asset Management, told ET Markets.The market, ever the forward-looking beast, appears to be banking on a robust FY26, driven by a low FY25 base and macro tailwinds like tax breaks, improving wage growth, capex uptick, and a favorable monsoon. But Bhole warned, "India appears to be in a better situation as of now, but larger economic blocks like China & Europe can start attracting large amounts of capital depending on tariff negotiations & changing fiscal / monetary policies given relative valuations advantage. US fiscal position & dollar valuation would also impact flows & hence asset prices.'March quarter numbers, however, didn't leave the Street overtly disappointed as expectations were already lowered post 3 quarters of continuous low-growth and weak corporate commentaries.'It was a kind of mixed bag across sectors,' said Sunny Agrawal of SBI Securities. He pointed to strong showings by ICICI Bank, HDFC Bank and Kotak, with Axis Bank missing expectations. Cement and metal sectors showed sequential improvement, driven by easing input costs and better realizations. Autos were a mixed lot, with M&M and TVS Motors performing well, while Hero MotoCorp disappointed.In consumer staples, volume growth was tepid, though Marico stood out with 6% volume growth. Jewelry and value retail players reported solid SSG growth, and QSRs held up despite a seasonal slowdown.Midcaps and smallcaps emerged as outperformers. "We are finding that the growth momentum may continue for the next two years, especially from midcap and smallcap companies," Agrawal added, noting that markets are rewarding bottom-line strength over sentiment.'Our FY26E/27E net profits of the Nifty-50 Index have seen cuts since the start of CY25,' said Shrikant Chouhan, Head of Equity Research at Kotak Securities. With Nifty trading at ~22x/19x for FY26E/FY27E, he warns that continued EPS downgrades could threaten target levels. "If that continues then there is a risk to our [Nifty 26,000] target."According to Elara Securities, Nifty50's rebound from March lows has been more price-driven than earnings-led, with PE multiples rising from 21x to 23x. Only a few top contributors like ICICI Bank and HDFC Life saw both earnings growth and rerating, while Reliance Industries and Adani Ports surged on sentiment more than fundamentals.Interestingly, in Nifty MidCap 150, the 17% rebound was mostly earnings-led, especially in names like BSE, HPCL, Polycab, and MRF, where price moves outpaced PE rerating, a positive sign of fundamentals driving midcap performance.Prabhudas Lilladher noted a similar trend. With 80% of Nifty 50 earnings declared, Q4 has shown sales growth of 4.8%, EBIDTA up 7.4%, and PBT growth at 14%, with margins expanding YoY and QoQ. 'We don't expect a significant change in trend,' they said.Dikshit Mittal of LIC Mutual Fund remains cautiously optimistic. "Q4 season has been better than expectations... the downgrade cycle appears to be behind us," he said. With falling bond yields and ample liquidity, 'downside is capped, and upside will depend on the earnings trajectory.'Q4 earnings, therefore, haven't fallen off a cliff, but they also haven't provided the rocket fuel needed to justify valuations near all-time highs. With the global macro environment turning fragile and earnings growth still playing catch-up, the market's next move hinges on whether corporate India can deliver — and deliver fast.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)