Nifty EPS Growth Falters: Navigating Market Uncertainties and Downgrades

Nuvama Research's latest report indicates Nifty's EPS growth is slowing, with a modest 2% YoY increase expected in Q3 FY25, raising concerns over mid-teens growth targets. Sluggish demand drives the trend, while high valuations and tightening liquidity challenge market prospects, prompting defensive investor strategies.

Nuvama Research has forecasted a modest 2% year-on-year increase in Nifty's earnings per share (EPS) for the third quarter of FY25, according to a recent report. This marks a significant deceleration compared to the 4% growth observed in the first half of FY25, casting doubts on achieving the mid-teens growth consensus for the fiscal year's latter half.

The report underscores that the sluggish earnings growth stems from weaker demand rather than external or liquidity shocks, thereby complicating recovery efforts. Reversing this trend demands substantial policy interventions, though none are currently anticipated. The consensus forecast for Nifty earnings stands at Rs 957 for FY24, Rs 1,040 for FY25, and Rs 1,240 for FY26.

Despite these projections, slower growth expected in the second half of FY25 threatens these estimates, amidst record-high valuations and tightening liquidity. Consequently, investors are advised to brace for heightened market volatility in 2025. The report advocates a defensive investment portfolio, preferring sectors like private banks, insurance, and telecom, while remaining underweight in industrials, metals, and power.

(With inputs from agencies.)