India’s profit cycle is reversing; double-digit growth expected in second half: Jyotivardhan Jaipuria

India’s second-quarter earnings season delivered steady, if unspectacular, performance, but the next two quarters could finally see an earnings rebound. Jyotivardhan Jaipuria, founder and MD of Valentis Advisors, told ET Now that while the September quarter turned out slightly better than expected, the second half of FY25 will see 10-12% earnings growth at the Nifty level.

GST delays have pushed growth to the third quarter

Jaipuria noted that purchases across categories were postponed as consumers and businesses waited for GST rate cuts announced on Independence Day. This pushed demand into October, which has now seen a strong festive season pull, paving the way for a better third quarter.

Bank profits will lead the recovery

Banks, which posted weak figures in the first half of the year due to tighter deposit rates and pressure on margins, are expected to recover. With banks adjusting deposit costs downwards, NIMs should expand, which would help earnings momentum.“Bank profits were negative in the first half of the year, but will increase significantly in the second half,” Jaipuria said.

Sectoral choices: pharmaceuticals, chemicals, capital goods, consumer durables

Valentis Advisors is selectively bullish on:

• Pharma & chemicals, where volumes and prices stabilize
• Capital goods, many of which have corrected and now look attractively priced
• Consumer durables, which benefit from festive demand and improving purchasing power

However, the company remains cautious when it comes to consumer goods and selectively wary of IT, where long-term visibility of growth has declined.

Jaipuria emphasized that the company’s approach remains focused on growth at reasonable valuations. Their portfolio companies are expected to deliver 25% earnings growth while trading at a portfolio-level price-to-earnings ratio of approximately 17.5x – a balance between value and visibility.

The big trigger now: return of FPI flows

Despite strong domestic inflows, the Indian market has not seen any participation from foreign investors. But that can now turn around. Three factors support this case:

• India has been the worst performing emerging market economy over the past year, underperforming MSCI EM by 20%, making valuations more reasonable.
• FPIs are massively underweight – roughly 250 basis points below the benchmark weight, creating room for reallocation.
• Valuation premiums have normalized, with India now trading at a 55% premium against emerging markets, compared to 100% a year ago.

“I don’t expect FPIs to be big sellers from here; at least flows should moderate and possibly turn positive,” Jaipuria noted.

Macros strong, profits turning, valuations are no longer extreme

India’s broader macroeconomic situation – moderating inflation, stable fiscal and current account figures – remains supportive.

With earnings bottoming out, festive demand picking up and FPIs likely to bounce back, Jaipuria believes markets have room to move higher even from the 26,000 Nifty zone.