Weak earnings are expected for different sectors in the second quarter of the current financial year. Analysts believe that companies are facing challenges on the front of high base, weak demand and margins. Meanwhile, the banking, financial and insurance (BFSI) sector may see the highest increase in income. After this comes the turn of information technology and chemical companies, which are likely to see improvement. On the other hand, profits of auto, commodity and industrial sectors are expected to decline.

Brokerage firms expect second quarter earnings growth to be at a post-Covid low. Meanwhile, brokerage firms such as Motilal Oswal Financial Services, Nuvama Institutional Equities and Axis Securities have forecast a sharp decline in profit growth to around 2% for the July-September period. According to MOFSL, this will be the slowest earnings growth of Nifty companies in 17 quarters. However, this slowdown in earnings growth of Indian companies has come after four consecutive years of good growth.

Impact on margins
During the last two business years, revenue and earnings growth have been largely dependent on global macroeconomic factors. According to MOFSL, the Russia-Ukraine conflict led to a rise in commodity prices, which impacted India's margins in FY23. Due to this, despite a substantial 24 per cent increase in revenue, earnings saw only 11 per cent growth.

This trend was then reversed in FY24, where a strong recovery in margins was seen due to a fall in commodity prices. This led to earnings growth for India increasing to 30%, driven by a marginal 4% increase in revenue. MOFSL has presented a more balanced outlook for FY25, which will allow earnings growth to better align with revenue trends. Will these sectors see a slowdown? Nuwama has warned that unlike FY24, volume rather than prices will lead to a slowdown in revenue for Indian companies. Sectors like auto, consumer services and metals will be responsible for this. While global sectors like chemicals, IT and commodities are expected to grow well this time. Estimating a slowdown in earnings growth amid high valuations of most sectors in the market, Nuwama has also raised concerns about a downgrade for Indian industry. The brokerage expects Nifty earnings per share to grow by just 3 per cent in the first half of FY25, posing a serious downgrade risk to consensus estimates of 13 per cent growth for FY25. Nuwama said caution is needed amid high valuations. Market Trends Axis Securities also believes that the shift in market sentiment from market to large caps last month was as expected and sector rotation was clearly visible. Going forward, Axis also expects near-term consolidation in the market, which is likely to narrow further and the focus will remain on sector rotation. Axis Securities said the market may soon see some short-term correction in some sectors and interest is likely to shift towards large caps. In this regard, the brokerage also believes that comments on margins and guidance for FY25 will remain important. Eye on rural demand

However, having said all this, MOFSL believes that some early signs of improvement in rural consumption as well as a good monsoon season bode well for rural incomes, demand and food inflation. "Corporate commentary from various sectors indicates that rural demand may have bottomed out," MOFSL said. The firm believes this, along with a possible rate cut by the RBI, could boost sentiments in the second half of the financial year.