Nifty Earnings Set to Grow 2% in Q2: Infosys and Mankind Pharma Top Stock Picks for Investors

Indian stocks have seen a big rise in recent years, thanks to strong economic growth, good corporate earnings (Nifty earnings grew 24% from FY20 to FY24), and large investments in domestic equity (USD 107 billion from 2021 to 2024 so far).

In the past 12 and 36 months, the Nifty, Nifty Midcap 100, and Nifty Smallcap 100 indices have climbed 31%, 48%, and 50%, respectively, showing the market’s strength despite global issues. However, as we move forward, geopolitical problems, like conflicts in the Middle East and tensions between Russia and Ukraine, are causing short-term uncertainty in the Indian markets. Foreign investors are also pulling out, and corporate earnings are slowing down after four years of strong growth.

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Due to rising costs and weaker growth in banking and financial services, Nifty earnings have been cut by around 6% since July 2024. Key indicators, like power demand and GST collections, also suggest a slowdown, and the stock market seems overvalued, making investments riskier.

Despite these challenges, India’s long-term growth story remains strong. Indian retail investors are still investing more than foreign investors (USD 107 billion from domestic investors vs. USD 19 billion from foreign investors between 2021 and 2024). The market is also seeing more activity, with companies raising ₹20 billion in 2024 alone. Rural demand is expected to recover after a good monsoon, and expected rate cuts by the RBI in 2025, following the US Federal Reserve’s recent easing, could further boost growth.

For the second quarter of FY25, Nifty earnings are expected to grow by 2% compared to the same period last year, mainly due to a slowdown in commodity-related sectors. Excluding global commodities like metals and oil & gas, Nifty earnings could grow by 10% YoY for the quarter. Sales, EBITDA, and profit after tax (PAT) for Nifty companies are expected to rise 4%, 5%, and 2% YoY, respectively.

The margin for Nifty-50 companies is expected to shrink by 40 basis points, with the margin at 20%. Growth will likely come from sectors such as banking (+11% YoY), healthcare (+15% YoY), and utilities (+24% YoY), with help from technology and telecom. However, cyclical sectors like oil & gas and metals are expected to face challenges, with oil & gas expected to drop by 33% YoY and metals by 2% YoY, while cement could fall by 41% YoY.

Banks, both private and public, will likely lead the financial sector, with earnings expected to grow by 10% YoY. Private banks are expected to grow by 5% YoY, while public sector banks are predicted to rise by 17% YoY. Large banks are in a good position to manage current challenges and deliver solid growth and profits.

The auto sector’s earnings may slow, growing by only 7% YoY due to weaker demand and a tough export market. IT companies are expected to see decent revenue growth in Q2FY25, but may not meet high expectations. The real test for this sector will come after Q3, when client budgets for 2025 are finalized, which will provide more clarity on future trends.

For FY25, earnings are expected to return to normal, in line with revenue growth. The Motilal Oswal Financial Services (MOFSL) Universe is projected to achieve 7% revenue growth, with EBITDA and PAT both growing by 8% YoY. The Nifty-50 is expected to show 7% earnings growth in FY25, following a high 26% YoY growth in FY24.

Stock Recommendations:

1. Infosys (Buy | Target Price: ₹2,200 | Current Price: ₹1,935 | Upside: 13%)

Infosys has upgraded its FY25 revenue growth forecast to 3-4% YoY, thanks to its acquisition of In-tech and a one-time boost from its India business. With a positive outlook in banking and financial services, especially in North America, and potential for higher margins, Infosys is well-positioned for growth in the medium term, making it an attractive investment option.

2. Mankind Pharma (Buy | Target Price: ₹3,000 | Current Price: ₹2,794 | Upside: 7%)

Mankind Pharma is set for strong growth, driven by its focus on chronic therapies such as diabetes, cardiac, and respiratory treatments, and its shift from sexual wellness to broader consumer wellness in the over-the-counter (OTC) space. The company is working to premiumize its products and strengthen its presence in Tier 1 cities by engaging more with key medical professionals. Despite short-term impacts on cash flow due to growth plans, earnings are expected to grow by 14% annually from FY24 to FY26, with a projected 180 basis points margin expansion.

(Author: Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd.)