Emkay lowers Nifty target to 25,000 while highlighting long-term resilience
Emkay Global recently made a 4% cut in its Nifty target, adjusting it to 25,000 from the previous 26,000. This adjustment was due to disappointing second-quarter earnings in sectors like discretionary and staples, as well as deteriorating corporate cash flows.
Despite this downgrade, Emkay reassured investors that there is no need to panic. They anticipate a recovery in consumption growth by the fiscal year 2026 once the current challenges subside. The brokerage pointed out that operational cash flow weakness was likely a result of delayed government payments, but they expect a recovery in the second half of this fiscal year.
Consumer companies were the main drivers of the earnings disappointment, with both staples and discretionary sectors reporting weaker-than-expected revenues. The topline growth for these sectors dropped significantly in the second quarter compared to the first. Discretionary consumption saw a 6% year-on-year growth, while staples declined by 3.1%.
Free cash flow took a significant hit, contracting by 51.7% year-on-year. Sectors like discretionary, materials, and industrials were particularly affected by weakened operational cash flow. However, Emkay remains optimistic about long-term growth prospects due to a 16% year-on-year increase in capital expenditure.
Emkay retained its sector outlook, remaining overweight on sectors like telecom, IT, energy, materials, and utilities. They are neutral on consumer discretionary, industrials, healthcare, and real estate, while being underweight on financials and staples. In their Model Portfolio, they have assigned high weightage to companies like Bharti Airtel Ltd., Reliance Industries Ltd., and Larsen & Toubro Ltd.
The weak earnings season led to a 2.5% cut in Nifty EPS projections, with fiscal 2025’s EPS growth estimates at 8%. While there have been steady earnings downgrades, Emkay highlighted a decrease in upgrades compared to previous quarters. They maintained a positive long-term view, citing India’s improved macro-financial resilience and projecting a recovery in consumption by fiscal 2026.
