The curtain has risen on the June quarter (Q1 FY2025) results, and early indications suggest a mixed bag for investors. While some sectors are poised to deliver robust earnings, others might temper overall growth expectations for the fiscal year. The initial forecasts point towards a varied performance across the market.

Mixed Q1 Earnings Forecast

Brokerage consensus leans towards domestic cyclical sectors driving earnings, but macro-economic factors have played out unevenly. Autos, particularly two-wheelers capitalising on a low base last year, are expected to show strong growth. Consumer goods and fast-moving consumer goods (FMCG) should also benefit from the extreme summer, boosting sales of cooling appliances and summer-specific products. Capital goods firms, spurred by government infrastructure spending, might also surprise positively.

However, not all sectors are riding the same wave. Infrastructure activity faced headwinds from the heatwave, impacting cement sales and prices. Banks, barring a few leaders, could see squeezed margins despite loan growth. Oil marketing companies may struggle with refining margins, and IT sector performance is anticipated to be lacklustre. The focus for IT will be on identifying companies adapting to Artificial Intelligence advancements. Overall, Nifty 50 earnings growth is projected to be a modest 5-6 per cent YoY, signalling a moderation from previous highs.

Housing Finance Bucks the Trend

Interestingly, even as overall earnings growth moderates, the housing finance sector is witnessing significant investor interest. TA Associates’ recent investment in Vastu Housing Finance, valuing the company at over $1.4 billion, underscores this confidence. This deal, following Aadhar Housing Finance’s IPO and Warburg Pincus’s stake in Shriram Housing Finance, highlights the sector’s attractiveness. Vastu’s focus on self-employed individuals in semi-urban and rural areas taps into a substantial and growing market.

Investment Rationale

The sustained investor enthusiasm in housing finance stems from the sector’s inherent growth potential. India’s housing market is expanding, driven by urbanisation and rising income levels. Non-bank housing finance companies, like Vastu, play a crucial role in reaching underserved segments. Their use of technology for underwriting and customised financial solutions further enhances their appeal. Despite broader market uncertainties and earnings moderation in other sectors, housing finance presents a compelling investment case due to its long-term growth trajectory and potential for robust returns.

Cautious Outlook Ahead

While housing finance offers a bright spot, investors should brace for a period of market moderation. The strong post-pandemic earnings recovery is likely to slow down. Market volatility may persist, especially leading up to the Union Budget. Analysts suggest a possible shift from cyclical to defensive stocks in portfolios to navigate this phase. The broader market could experience time correction, with large-caps potentially outperforming small and mid-caps. After a significant rally, the Nifty 50’s valuation at 20 times forward price-to-earnings ratio suggests limited room for runaway growth, at least in the near term.

What should investors consider? Focus on sectors with resilient demand and long-term growth potential, like housing finance, even as the broader market navigates a phase of earnings moderation and potential volatility.