BofA strategists added that a delayed recovery in rural India could also hurt earnings as could the potential peaking of demand in urban India. They also observed that the volatility in prices of commodities posed a risk to a revival in margins.

Early results for the March quarter show some companies are struggling to grow volumes while others are not able to command strong realisations. While these are early days, net profits for a sample of 262 companies (excluding banks and financials) were down 5% year-on-year in the March quarter as operating margins contracted and interest costs jumped 50% y-o-y. Revenues rose by a tepid 8% y-o-y. Seen sequentially, profits were up a good 28%, but not on the back of topline growth, which was up just 2% quarter-on-quarter. The bottom line was boosted by a much slower increase in interest costs of 12% and by a fall in raw material costs and other expenses. When banks and financials are included, net profits were flat for a sample of 330 companies.

“We expect continued cuts to consensus FY24/25 earnings growth. We see no upside to our Nifty year-end target of 18,000 and would look to book profits,” BofA strategists wrote. They advised investors to buy Indian stocks on potential market dips or at a level of 16,000 for Nifty. FE