Disciplined asset allocation to define success in months ahead; BFSI, PSU banks lead
The third quarter (Q3) earnings season reflected moderate corporate performance, marking the third consecutive quarter of single-digit earnings growth, according to a report on Monday, which stressed that quality, resilience and disciplined asset allocation will define success for investors in the months ahead.
While some sectors continued to deliver resilient results, others struggled with margin pressures, demand slowdowns and global macroeconomic uncertainties, said the report by Motilal Oswal Financial Services.
Nifty-50 reported 5 per cent YoY PAT growth, aligning with expectations but significantly weaker than the 20 per cent+ CAGR seen between FY20-24, leading to a more cautious investment outlook.
BFSI led the earnings cycle, growing 11 per cent YoY, with PSU banks (+24 per cent YoY) outpacing private lenders due to lower credit costs and better asset quality.
Healthcare posted 25 per cent YoY growth, driven by chronic therapies and strong US generics demand. The Capital Goods sector expanded earnings by 20 per cent, benefitting from strong order inflows and continued government infrastructure spending. Technology (+9 per cent YoY) remained resilient, though margin pressures persisted, the report mentioned.
With the earnings downgrade cycle intensifying and macro uncertainties persisting, a selective investment strategy is imperative.
“The market is facing high valuations, slowing earnings growth, and volatility across key sectors, requiring a disciplined and resilient approach to portfolio construction,” said the report.
“With earnings revisions trending downward and valuations remaining elevated, sector selection becomes more critical. We maintain a large-cap bias, given their stronger earnings visibility and relative stability in a volatile market environment,” it added.
BFSI remains a core sector for allocation, with PSU banks showing superior earnings momentum. Healthcare and IT continue to offer structural growth opportunities, while Capital Goods and Real Estate benefit from infrastructure and housing demand.
“A mix of large caps and select high-growth midcaps will provide both stability and upside potential,” the report mentioned.
