MSCI India’s profit growth is slowing, says Goldman Sachs by Investing.com

Investing.com — India’s first-quarter earnings season has ended, showing a mixed performance across sectors. Profit growth for the MSCI India index moderated to 9% year-on-year (y/y), from 16% y/y in the previous quarter.

“There was a notable decline in energy, while banks contributed significantly to growth,” analysts at Goldman Sachs said.

Reported profit growth for MSCI India beat the consensus estimate of 3% y/y, indicating a better-than-expected overall performance.

However, profit growth of 9% was below the historical average, reflecting ongoing challenges in certain sectors of the economy.

The earnings season was marked by a divergence in performance across sectors. Defensive sectors such as telecoms and utilities emerged as strong performers, with 42% of companies in these areas beating market expectations.

This outperformance was largely attributed to strong fundamentals and stable demand, which contributed to an average earnings surprise of around +3%.

Many companies in these sectors managed to beat forecasts, reflecting the market’s resilience and steady demand.

The Cement and Commodities sectors faced the most challenges, with a substantial number of companies missing earnings forecasts. The problems were exacerbated by weak demand in the Cement sector due to monsoons and elections, and in Commodities by global price volatility and input cost pressures.

Overall, MSCI India companies posted an average earnings surprise of +3%, with beats outnumbering misses (42% beats vs. 34% misses). This is a positive indicator, suggesting that despite the moderation in profit growth, many companies managed to beat market expectations.

While IT companies reported a cautious sentiment regarding technology discretionary spending, there was a notable shift toward optimism.

This is on the back of improving sequential growth and a robust deal pipeline, signaling a potential recovery in the coming quarters.

The Cement sector faced reduced demand due to the monsoon season and election-related disruptions. However, management teams expressed confidence in a rebound in demand from Q3 FY25, driven by government infrastructure projects.

“Commodity companies are seeing green shoots in the rural recovery, with rural growth outpacing urban growth in recent months. Managements expect the improvement to continue, supported by stable inflation, healthy monsoon and fiscal support from the government,” analysts said.

Overall earnings sentiment eased slightly, primarily due to downgrades in the commodities and cement sectors. Consensus estimates for MSCI India’s CY24 EPS have been cut by 0.5% year-to-date, reflecting the cautious outlook for these sectors.

Despite these adjustments, analysts at Goldman Sachs remain bullish on the medium-term growth outlook, maintaining a mid-teens growth forecast for CY24 and CY25.

Goldman Sachs adjusted its CY24 EPS growth forecast by 1 percentage point (pp) to 14%, while maintaining a 15% growth forecast for CY25. These projections are in line with consensus and reflect cautious optimism.

The outlook remains more favorable for the consumer sensitive and defensive sectors, which are expected to see slightly higher growth. In contrast, growth expectations for commodity- and investment-sensitive sectors were subdued due to ongoing challenges.