India Strategy_ Let's acknowledge the slowdown

Summary of Earnings Call and Industry Analysis Industry Overview - The analysis focuses on the Indian market, particularly the NSE100 firms, highlighting a significant slowdown in earnings growth expectations for Q2 FY2025 compared to initial forecasts [4][5][9]. Key Points Earnings Performance - Over 65% of NSE100 firms reported earnings, with 48% missing expectations by more than 4%, marking the highest miss rate since March 2020 [4][21]. - Initial growth expectations for Q2 were set at 9% YoY, but actual growth is projected to be around 0.6%, indicating a material contraction in earnings [16][9]. - The automotive sector has been particularly affected, with demand for passenger vehicles (PVs) and premium two-wheelers (2Ws) declining [16][9]. Sector-Specific Insights - Banks and IT: These sectors have shown resilience, with banks benefiting from larger names and IT finally hitting a bottom [5][9]. - Healthcare: Results have been in line with expectations, slightly better than other sectors [16]. - Consumer Staples: An urban slowdown is noted, with expectations of rural recovery being cautious [5][31]. - Utilities and Industrials: Both sectors are experiencing low demand due to weak capital expenditure (capex) and adverse weather conditions [5][9]. Future Expectations - Despite a flat H1, full-year earnings growth forecasts remain in double digits at 10.2%, although this is a decrease from 13% prior to Q2 [16][9]. - Q3 earnings expectations have increased, particularly for utilities and autos, driven by anticipated festive demand [16][9]. - There is skepticism regarding the ability to meet high expectations for Q3, given the weak performance in Q2 [29][30]. Macroeconomic Context - The broader economic slowdown is acknowledged, with indicators showing a loss of momentum across various sectors [9][30]. - The Reserve Bank of India (RBI) has not yet adjusted growth estimates, but there are indications that a policy response may be necessary if the slowdown continues [36][30]. - The commentary from firms suggests a tendency to attribute poor performance to external factors like monsoons and elections, rather than acknowledging underlying issues [30][31]. Investment Implications - The market has not fully priced in the extent of the slowdown, and there is a risk of further earnings cuts as reality sets in [9][30]. - A bottom-up investment strategy in select sectors is recommended, as the overall market may face volatility [9][30]. Additional Insights - The commentary from earnings calls indicates a reluctance to fully acknowledge the slowdown, with many firms maintaining a positive outlook for Q3 despite recent performance [24][29]. - The urban-rural demand dynamic is complex, with urban areas showing weakness while rural areas exhibit signs of recovery, but not enough to offset urban declines [31][30]. This summary encapsulates the critical insights from the earnings call and industry analysis, providing a comprehensive overview of the current state and future expectations for the Indian market.