Let's acknowledge the slowdown: Bernstein after Q2 earnings miss

As almost half of NSE100 companies that have released their September quarter results have missed expectations by over 4%, global brokerage firm Bernstein has predicted a further decline in the Indian stock market, stating that the current market prices haven't fully factored in the potential economic slowdown.

Asking investors to acknowledge the slowdown, the brokerage said earnings misses have been a secular trend across sectors, barring banks which are helped by larger names.

IT stocks, it said, seems to have finally hit bottom, while autos have been hurt due to subdued demand, staples have started to see an urban slowdown. Utilities, industrials and cement have seen low demand, mainly because of weak capex and monsoons, it said, adding that discretionary demand has also been weak.


The firm forecasts the Nifty 50 index to reach 23,500 by year-end, marking a 500-point drop from its current level. This prediction comes as the Nifty 50 has already fallen nearly 9% from its peak of 26,277 on September 27th.

"Thanks to an elongated period of strong growth, most participants from policymakers to investors are still considering the slowing signs an anomaly. Once reality hits, we expect a further but limited moderation in the Nifty from current levels,” Bernstein said in its strategy report.

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Arguing that monsoons and elections could only be part of the reasons for the earnings misses, it said rural growth is unlikely to completely counter the effect of urban slowdown.

Thanks to an elongated period of strong growth, most participants still consider the slowing signs an anomaly, Bernstein said, adding that bottom-up play in select sectors can be a good strategy now.

In the meantime, an analysis of 34 Nifty companies that have reported results so far shows that profit has been flat on a year-on-year (YoY) basis against the expectation of 2% growth.

"Nifty EPS estimate for FY25 was cut by 1.2% to Rs 1,059, largely owing to BPCL, Reliance Industries, and Coal India. FY26E EPS was also reduced by 1% to Rs 1,256 (from Rs 1,269) led by downgrades in BPCL, Reliance Industries, Maruti Suzuki, Bajaj Finance, and IndusInd Bank," Motilal Oswal said in its interim earnings review.

Among the 34 Nifty companies that have come up with their quarterly numbers thus far, the growth was led by ICICI Bank, Axis Bank, Bharti Airtel, NTPC, and HDFC Bank. Conversely, BPCL, JSW Steel, Coal India, IndusInd Bank, Reliance Industries, and Ultratech Cement contributed adversely to Nifty earnings, the brokerage said.

"Nine companies within the Nifty reported profits below our expectations, while 10 recorded a beat and 15 registered in-line results," it said, adding that overall Nifty EPS has seen 7% downward revision in last six months, reducing the expected FY25 earnings growth to just 5%, weakest since FY20.

Among banks, PSUs reported a healthy earnings trajectory while the performance of private banks was mixed. IT companies reported healthy performance, with a median revenue growth of 2.0% QoQ CC, Motilal said, adding that the outlook remained slightly guarded, signaling persisting uncertainties.

In the last one month, Nifty has been down around 4% as earnings growth has failed to sustain high valuations. NSDL data shows that FIIs pulled out over Rs 94,000 crore from Dalal Street in October, the highest ever monthly sell-off in history.