Domestic broking house Emkay Global Research has revised down its December 2025 Nifty target by 4 per cent to 25,000 from 26,000 amid valuation concerns and weak consumption demand. “We cut our Nifty target by 4% to 25,000 from 26,000, despite a 3M rollover to Dec-25. This is a reaction to a poor earnings season marked by weak consumption demand and worsening cash flows,” it said in a recent note.

“We think the markets will mark time in the immediate future, despite the 10 per cent correction since 27-Sep-2024. Our sector preferences stay the same – OWT on IT and Energy, and UW on Financials and Staples,” it added.

According to Emkay Global, Consumer companies across staples and discretionary led the negative surprise, with across-the-board revenue misses: 21 per cent reported negative surprises. 

“Average topline growth for staples+discretionary slowed to 2.19 per cent in 2QFY25 from 12.35 per cent y-o-y in Q1-FY25,” it added. 

“Discretionary outperformed staples in Q2 (6 per cent y-o-y vs -3.1 per cent), belying our expectations of a recovery in mass consumption. We believe this is led by slowing unsecured credit growth, weak hiring in 2HFY24, and a base effect after three years of sustained growth in a number of premium segments. We expect a recovery in consumption growth in FY26, as these headwinds dissipate,” it further said.

Cash flows weak

The weak earnings growth (Nifty PATg at 2.4 per cent y-o-y) was compounded by worsening cash flows. The marginal good news is that aggregate capex grew 16 per cent YoY, albeit worsening the free cash flow (FCF), the report said. According to the Emkay Global study, the worst affected sectors were Discretionary, Materials, and Industrials, where all saw operating cash flow (OCF) weaken and capex accelerate. The silver lining is that the OCF weakness was probably due to delayed government payments (which should bounce back in 2HFY25), and the capex pick-up is a positive for the longer term. It further said.

However, according to Emkay Global, earnings downgrades are not alarming.

“There is a definite weakening of earnings trends over the earnings season, but it is not alarming. Nifty EPS saw a 2.5% cut over the earnings season (30-Sep-2024 to date). A deeper dive shows that the share of companies with an over 5% cut in FY25 EPS over this period was steady at 26% (vs 28% in 1HFY25)”.

No upgrade is worrying

The big negative was the disappearance of upgrades, as only 2% of the companies saw upgrades in 3QFY25 (to date) vs 24% in 1HFY25. The other negative is that EPSg for FY25 is now at a weak 8%, it added.

“We cut our Nifty target to 25,000 from 26,000, implying a 20.4x target PER after rolling over the Dec-25 from Sep-25. The implied P/E is at a 3% premium to the 5-year average which we think is supported by long-term growth prospects and India’s improved macro-financial resilience,” it reasoned out for the downward Nifty target.

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