Motilal Oswal Financial Services anticipates a slowdown in earnings growth for the quarter, projecting a 10% year-on-year profit increase within its coverage universe. This marks a decline from the 18% and 15% growth observed in the previous two quarters, influenced by geopolitical tensions affecting crude oil and gas prices.
The brokerage highlights that the ongoing Iran-Israel/US conflict has disrupted the near-term market setup, potentially impacting India's crude oil imports and raising concerns over inflation, currency pressure, and corporate margins. Excluding financials, profit growth is estimated at 9%, while excluding oil marketing companies, it is seen at 10%.
Several sectors are expected to face significant profit declines. In the aviation sector, InterGlobe Aviation, operating IndiGo, may see a 30% drop in profits. The automobile sector is also under pressure, with Hyundai Motor India and Tata Motors' commercial vehicle business expected to report profit declines of 27% and 14%, respectively.
In the capital goods sector, Hindustan Aeronautics Ltd. is projected to report a 33% fall in profit, while KEC International and Zen Technologies may see declines of 23% and 47%, respectively. The cement industry is not spared, with Ambuja Cements, ACC, and others expected to report double-digit profit declines.
The brokerage further notes that largecap earnings growth is likely to slow the most, with only a 7% year-on-year increase expected. In contrast, midcaps are projected to perform better with a 25% profit growth, and smallcaps are expected to see an 18% increase, aided by a favorable base.
Background
The potential impact of geopolitical tensions on crude oil prices is significant for India, which relies heavily on imported crude. This situation poses risks to inflation, currency stability, and corporate profitability, making it a critical factor for investors to monitor.
Looking ahead, the key risk for Indian equities remains the prolonged conflict in West Asia, which could exacerbate inflationary pressures and affect corporate profitability. However, Motilal Oswal remains optimistic about long-term growth, forecasting a 16% CAGR in earnings for both its universe and the Nifty over FY26-28, supported by policy measures and improved foreign flows once geopolitical risks ease.
