Nifty Q3FY25 Earnings Slowdown: Implications for Market Volatility in 2025
Mumbai, Maharashtra [India], January 8: Nifty’s earnings growth trajectory is set to decelerate further in the third quarter of FY25, with earnings per share (EPS) projected to rise by only 2% year-on-year (YoY), as per the latest report by Nuvama Research. This represents a significant slowdown compared to the 4% growth recorded in the first half of FY25 and raises serious concerns about meeting the mid-teens growth consensus expected for the latter half of the fiscal year.
The report expressed caution, stating, “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.”
This subdued growth in earnings is attributed largely to weaker demand dynamics rather than external factors or liquidity issues. The report emphasized that such demand-driven slowdowns are more challenging to reverse, as they often necessitate significant policy measures, which currently do not appear to be on the horizon.
Adding to the concerns, the report noted, “The more worrying aspect is that a slowdown in earnings is now being led by demand rather than external/liquidity shock.”
Projections for Nifty Earnings
Looking ahead, consensus estimates for Nifty earnings remain optimistic, with projections of ₹957 for FY24, ₹1,040 for FY25, and ₹1,240 for FY26. However, the report warned that the slower-than-expected growth in the second half of FY25 could pose a downside risk to these forecasts, particularly given the challenges of record-high market valuations and tightening liquidity conditions.
It elaborated, “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.”
Market Volatility Ahead
With these earnings challenges in mind, the report urged investors to brace themselves for heightened market volatility in 2025. The current environment underscores the importance of adopting defensive investment strategies to navigate the uncertain terrain.
Portfolio Strategy: Defensive Tilt
Nuvama Research revealed a defensive positioning in its portfolio, favoring resilient sectors such as private banks, insurance, telecom, pharmaceuticals, consumer goods, cement, and chemicals. Meanwhile, it has adopted an underweight stance in industrials, metals, power, public sector banks, and non-banking financial companies (NBFCs).
This sectoral strategy reflects a cautious approach amid slowing earnings and macroeconomic challenges. The report highlighted the need for careful planning to mitigate risks and safeguard investments during this period of uncertainty.
Conclusion
As the third quarter of FY25 unfolds, the slowdown in Nifty earnings growth is a clear signal for investors to reassess their strategies. The demand-driven deceleration, coupled with high valuations and liquidity pressures, paints a complex picture for the market in the year ahead. Adopting a balanced and defensive investment approach will likely be critical in navigating the volatility that looms on the horizon.
