Corporate Q2 results worrying, concerns about economy mount

The Q2 results season so far has sparked concerns in the Indian stock market as numerous companies reported weaker-than-expected earnings and cautious outlooks. Analysis from JM Financial on 157 companies, out of its coverage universe of 275, indicates mixed results across sectors. Nearly half of the companies missed earnings expectations, suggesting a challenging economic environment.

According to JM Financial, in the Q2 results so far, 44% of companies (69 companies) underperformed, missing analyst estimates, while 41% (65 companies) exceeded forecast. The remaining 15%, or 23 companies, reported results in line with expectations, illustrating a diverse response across industries.

Revenue growth has been a key area of concern, with 27% of companies (43 companies) reporting weaker growth than anticipated.

There is a slowdown in urban demand seen across FMCG, retail, auto, and mall operators. Chemicals and consumer durables have also seen a moderation in demand, JM Financial said.

The financial sector also witnessed some concerns. Microfinance institutions (MFIs) and select private sector banks, as well as non-banking financial companies (NBFCs), reported stress in their unsecured lending portfolios. This trend underscores potential risks associated with high interest rates and cautious lending practices as financial institutions brace for possible defaults.

Sector-wise  Q2 results

BFSI: Public sector banks reported strong results due to recoveries that drove down credit costs and operational expenses. However, the MFIs faced a challenging quarter due to elevated credit costs. NBFCs and private banks were a mixed bag, with misses driven by elevated credit costs.

FMCG and retail: Larger companies in FMCG and retail sectors reported weakening urban demand, coupled with rising raw material inflation and limited ability to implement corresponding price increases.

Auto OEMs and ancillaries: Original equipment manufacturers (OEMs) in the auto sector experienced lower demand and increased raw material costs, but  Q2 was strong for auto ancillaries.

Chemicals: The chemical sector saw sluggish demand, with inventory piling at the customer level leading to misses. However, favourable revenue mix and strong contract manufacturing revenue drove select beats.

Oil refining & marketing and city gas distribution: Oil refining & marketing saw a tepid Q2, due to weak gross refining margins (GRMs) and the LPG business struggling to recover. The CGD companies missed estimates due to higher gas costs, the brokerage firm noted.

Overall, Q2 results so far underscore a cautious economic landscape, with investor sentiment impacted by downbeat corporate earnings and restrained growth in multiple sectors. Weak earnings have had a notable impact on the share prices of several companies, leading to sharp corrections in recent trading sessions.

(By arrangement with livemint.com)