Slowdown in Urban Consumption, Recovery in Communications and Govt Spending Led Growth
The consumer discretionary sector, which includes retail, travel, and automobiles, had the biggest negative surprise.
These sectors, with their sky-high valuations, are expected to face further challenges.
Overall earnings growth of BSE 500 companies (483 reported) was a meagre 1.5% and the YoY revenue growth was 10.6%.
However, not all sectors have fared poorly. Communications, materials, and real estate have shown resilience and marketing beating earnings growth. Communications sector was able to grow its earnings 147%, materials was able to grow 45% and real estate was able to grow 26%. This clearly goes out to show that the slowdown is not uniform across the board. This mixed performance suggests that while some sectors are struggling, others are thriving, providing a nuanced picture of the Indian economy.
Resilient Consumer, Magnificent 7 Growth, Financials leading the pack
In contrast, the USA's latest earnings season has demonstrated a strong resilience despite several challenges. The US economy had been grappling with inflationary pressures, supply chain disruptions, and geopolitical uncertainties.
However, corporate earnings have shown a more stable performance compared to India despite slower revenue growth. Out of 3000 companies analyzed, the companies on an average grew between 4 and 5 percent on revenue but grew 11.5% on earnings on an average.
Financials (led by JP Morgan, Goldman Sachs, Amex, Mastercard, Visa, Wells Fargo etc) grew their earnings by 33% on a YoY basis, closely followed by Communication Services growing at 30% and Technology at 19%. Tech show was led by Mag 7 and more specifically by Nvidia. The US consumer discretionary sector, which includes retail and travel, has also shown signs of recovery, albeit at a slower pace compared to pre-pandemic levels.
The energy sector, on the other hand, has faced headwinds (having a negative 24% earnings growth) due to fluctuating oil prices and regulatory challenges. Materials had negative 21% growth and Industrials also fared poorly at 9% negative YoY earnings growth.
One of the key differences between the two earnings seasons is the impact of consumer behavior. In India, urban consumers have cut back on spending due to economic uncertainties and rising costs of living. In the USA, while consumer spending has been more resilient, it has not reached pre-pandemic levels. India's growth was largely led by government spending whereas USA was led by consumer.
The other impact is India having a higher revenue growth but lower earnings growth while in USA earnings growth was higher on base of lower revenue growth.
Another key difference is that Industrials is thriving in India due to China + 1 move but not as much in USA. Materials sector performed orthogonally in both the countries.
Another difference is the performance of the financial sector. In India, public sector banks have shown impressive profit growth, while in the USA, financial services have benefited from lower provisioning costs and strong demand for financial products
Despite these differences, both economies have shown signs of resilience in certain sectors. In India, communications, materials, and real estate have thrived, while in the USA, financials, communications, technology and healthcare have performed well.
The latest quarter earnings season has highlighted the contrasting economic landscapes of India and the USA. While India shows lot of promise with highest economic growth, the latest slowdown has hurt that story and while in USA the consumer is strong, the inflation pressures are rebounding. Also with uncertainty around Trump policies in 2025, puts the largest economy of the world on tenterhooks.
Both economies have pockets of strength and challenges, reflecting the complex interplay of global and local factors. As we move forward, it will be crucial to monitor these trends and adapt portfolio strategies to navigate the evolving economic environment. The resilience shown by certain sectors in both countries provides hope for a continued outperformance in the coming quarters.
Malay Shah is a Founder and a Principal Advisor at CrispIdea (www.crispidea.com/ai-first-wealth). He is a SEBI registered Investment Adviser with more than 24 years of work experience with professional services firms like EY, McKinsey, Alvarez & Marsal bringing in a wealth of knowledge about market trends, economic cycles, and investment strategies.
He is on a mission to democratize wealth for the ambitious professionals in India by bringing the best AI technology combined with powerful capabilities of large fund-houses and financial institutions to retail clients, ensuring capital protection, tax-optimized asset allocation, and market outperformance
