New Delhi, 10 October (H.S.): Small- and mid-cap companies in India could outperform their large-cap counterparts in terms of earnings growth during the September quarter, according to a recent report by global brokerage firm JPMorgan. Rising domestic capital expenditure, the expansion of advanced manufacturing and substantial investments in artificial intelligence (AI)-powered data centres are expected to benefit smaller companies directly. Although rising raw material prices and elevated freight costs could put some pressure on corporate profit margins, strong domestic demand is expected to support healthy earnings growth across the corporate sector.
Projecting the pace of earnings growth, the report estimates that the profits of leading companies in the Nifty 50 index could rise by a robust 17 per cent year-on-year in the second quarter of the current financial year. The aggregate net profit of companies covered by JPMorgan is also projected to increase by 16 per cent year-on-year.
On the revenue front, corporate revenue growth could accelerate to 20 per cent in the September quarter, compared with 19 per cent in the preceding quarter. The early onset of the festive season, advance preparations by companies and resilient domestic demand have played a significant role in supporting this growth momentum.
According to the report, earnings growth during the quarter is expected to receive its strongest support from the metals, logistics, hospital, retail, consumer discretionary, industrial and banking sectors.
However, the performance outlook is not uniform across industries. Companies in electronics manufacturing, pharmaceuticals and fast-moving consumer goods (FMCG) are expected to report higher earnings, but rising input costs could prevent much of that growth from translating into stronger profitability.
In contrast, the information technology (IT) and cement sectors are expected to remain relatively subdued. Surging prices of raw materials, fuel and packaging are likely to weigh on corporate profitability.
JPMorgan estimates that the earnings before interest, taxes, depreciation and amortisation (EBITDA) margins of companies under its coverage could contract by as much as 121 basis points year-on-year.
The report also points to a potentially favourable earnings outlook for large private-sector banks. Following the Reserve Bank of India’s (RBI) interest rate hikes and its firm stance on inflation, earnings estimates for these lenders are expected to see further improvement.
The outlook suggests that banking stocks could continue to benefit from relatively supportive earnings prospects, although broader macroeconomic conditions and the trajectory of interest rates will remain important factors for investors.
JPMorgan has also highlighted several risks that could weigh on the market in the coming months. Rising food inflation, below-normal rainfall, persistent geopolitical tensions and the growing disruption caused by AI in the IT sector could all emerge as sources of concern.
These factors may influence corporate earnings, operating costs and investor sentiment, potentially creating divergent performance across sectors.
Despite these risks, JPMorgan has retained its overweight ratings on banking, healthcare, industrials and metals, reflecting its continued confidence in their relative prospects amid India’s domestic demand trends and the approaching festive season. The brokerage remains underweight on the IT sector, signalling a more cautious stance towards its near-term outlook.
Overall, the report suggests that resilient domestic consumption, capital investment and seasonal demand could provide support to Indian corporate earnings in the September quarter, even as rising costs and global uncertainties continue to challenge profit margins in several industries.
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Hindusthan Samachar / Jun Sarkar
