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The BSE500, a benchmark index representing the top 500 listed companies on the Bombay Stock Exchange, has registered a flat performance in the first quarter of the current fiscal year (FY25), according to domestic brokerage Nuvama Institutional Equities. The report highlights a slowdown in both revenue and profit after tax (PAT) growth, marking a continuation of the trend observed over the past five quarters. While the index witnessed an 8-10 percent growth in both revenue and PAT for the quarter ended June, this growth represents a significant slowdown from the stronger PAT growth recorded in FY24. This subdued performance is attributed to fading benefits from lower input prices and stable credit costs in the BFSI (Banking, Financial Services, and Insurance) sector, coupled with weak demand.
The analysis points to a decline in performance across cyclical sectors like industrials and autos. The BSE500 wage bill, a measure of employee compensation, has also significantly slowed, reaching a growth rate of only 6 percent in the first quarter, nearly touching historical lows. This slowdown in wage bill growth, down to 8 percent year-on-year for the private sector, signals a 10-year low excluding the COVID-19 period, and reflects corporate cost-cutting measures. The slowdown in wage growth is a significant concern as it aligns with revenue growth, suggesting a potential for further slowdown. Nuvama predicts this slowdown could negatively impact household incomes, further amplifying the economic downturn.
Nuvama forecasts that margins will face more headwinds than tailwinds going forward, with BFSI credit costs normalizing alongside input prices. The brokerage expects limited room for margin expansion due to corporates already operating at high efficiency levels. This emphasizes the critical need for a top-line revival to drive improvement in both margins and profits. The overall performance for the quarter was characterized by a flat trajectory, with previously strong performers like autos, consumer services, airlines, industrials, cement, and banks experiencing a decline. Conversely, sectors like durables, FMCG, chemicals, and power showed some improvement, mainly attributed to a low base.
As a result of these trends, Nuvama has downgraded its forecasts for FY25 earnings, reversing previous upgrades made over the past three quarters. These downgrades apply to both large-cap and small- and mid-cap (SMID) companies. While consensus forecasts still project an 17 percent earnings growth for BSE500 companies in FY25, Nuvama believes this target is unlikely to be achieved, given the waning tailwinds from input prices and lower credit costs. The brokerage anticipates that earnings growth will be driven primarily by margin improvement, a scenario it deems unlikely given the current economic landscape.
Overall, the report paints a picture of a challenging environment for the BSE500, with slowing growth and potential for further slowdown in both revenue and earnings. The slowdown in wage growth is another critical factor to watch as it could negatively impact household incomes and further amplify the economic downturn. The report underscores the importance of a top-line revival to drive improvement in both margins and profits, highlighting the need for businesses to adapt and navigate these challenging market conditions.
Source: BSE500 registers flat Q1 performance with slower PAT, revenue growth: Nuvama