Nifty earnings to slow down in Q3FY25 will lead to heightened market volatility in 2025: Nuvama Research

This marks a slowdown compared to the 4 per cent growth witnessed in the first half of FY25 and raises concerns about achieving the mid-teens growth consensus for the second half of the fiscal year.

The report said "Nifty EPS is likely to grow 2 per cent (versus 4 per cent in H1FY25)-posing downgrade risks to H2FY25 consensus estimate of mid-teens growth".

The report highlighted that the current slowdown in earnings growth is primarily driven by weaker demand rather than external or liquidity shocks, making the recovery more challenging. It noted that reversing the trend would require significant policy interventions, which are not currently anticipated.

It added "The more worrying aspect is that a slowdown in earnings is now being led by demand rather than external/liquidity shock".

For the full fiscal year and beyond, the consensus forecast for Nifty earnings is projected at Rs 957 for FY24, Rs 1,040 for FY25, and Rs 1,240 for FY26.

However, the slower-than-expected growth in H2FY25 poses a downside risk to these estimates, as the market struggles with record-high valuations and tightening liquidity.

It said "Hence, reversing the same shall need a significant policy response, which at present is not on the anvil. Consensus forecast of Nifty earnings for FY24/25/26 is INR957/1,040/1,240".

Given the uncertain environment, the report warned investors to prepare for heightened market volatility in 2025.

The report stated it has adopted a defensive strategy in its portfolio, favouring sectors such as private banks, insurance, telecom, pharmaceuticals, consumer goods, cement, and chemicals. On the other hand, it remains underweight in industrials, metals, power, public sector banks, and non-banking financial companies (NBFCs).

The report highlighted the need for careful investment strategies in the face of slowing earnings and challenging macroeconomic conditions. (ANI)