Q3 Results Review: Healthcare, banking sectors stand out; Oil & gas, auto, consumer face challenges

The Q3 results season for FY25 delivered mixed results, with the Nifty 50 reporting a modest 5% year-on-year (YoY) profit after tax (PAT) growth, in line with Dalal Street expectations. This marks the third consecutive quarter of single-digit PAT growth since the pandemic. While large-cap companies met expectations, mid-caps outperformed, and small-caps reported significant misses.

The December quarter corporate earnings scorecard was modest, driven once again by BFSI, with positive contributions from technology, telecom, healthcare, capital goods and real estate.

Here’s a look at sectoral performance in Q3FY25.

Top-Performing Sectors

Healthcare: A Standout Performer

The healthcare sector recorded a robust 25% YoY earnings growth, exceeding estimates of 19%. Overall performance at the aggregate level was driven by strong demand in the US generics market, increased focus on chronic therapies, and stable raw material prices.

Despite reduced contributions from acute therapies, the sector maintained its growth momentum, according to brokerage firm Motilal Oswal Financial Services (MOFSL).

Banks: Solid Growth but Margins Under Pressure

While banks delivered a steady performance, private sector banks faced challenges due to narrowing net interest margins (NIM) and rising provisioning costs. Public sector banks also witnessed some margin compression, though to a lesser extent.

Net Interest Income (NII) growth stood at 9% YoY for private banks and 3.6% YoY for PSU banks. Fresh slippages stood elevated for most of the banks amid sustained stress in microfinance, MOFSL said in a report.

Private Banks: Advances growth stood at 2.8% QoQ, while the CASA ratio continued to moderate for most of the banks. NIM continued to see moderation as yields declined due to slower growth in MFI for most banks. Slippages stood elevated amid stress in unsecured segments, while others were under control.

PSU Banks: NII for the state-run lenders stood largely flattish at 0.4% QoQ. Slippages remained under control for most banks, reflecting no imminent signs of stress for the banks. Hence, the Gross Non-Performing Assets (GNPA) ratio improved by 6-51 bps QoQ.

Technology: A Mixed Quarter with Modest Growth

IT services firms had a seasonally weak quarter, with median revenue growth of 1.8% QoQ in constant currency terms. Major players' guidance revisions disappointed investors, though select companies in digital transformation and AI-focused segments continued to perform well.

Capital Goods & Industrials: Resilient Amid Macro Pressures

Strong infrastructure spending and order inflows supported earnings growth in the capital goods sector. Industrial companies benefited from continued investment in automation and manufacturing expansion.

Sectors Facing Challenges

Oil & Gas: Flat Revenue, Profitability Hit

Oil & Gas sector’s revenue was in line with estimates, but PAT declined 11% YoY, missing expectations by 7%. Excluding oil marketing companies (OMCs), adjusted PAT fell by 8% YoY, while EBITDA was flat YoY, according to MOFSL. Volatility in crude prices and policy uncertainty weighed on the sector's performance.

Consumer Sector: Weak Demand and Margin Pressures

The consumer sector struggled, with a 5% YoY decline in profit. FMCG companies under MOFSL coverage reported a 6.8% YoY revenue growth as demand remained subdued. Volume growth for most companies was limited to low- to mid-single digits.

Rising commodity costs, particularly in the agri basket, combined with insufficient price hikes, led to gross margin pressure across most categories and companies.

Persistent demand challenges, margin pressures, and muted management commentaries signalled continued weakness. The rural demand outlook showed some improvement, but urban consumption trends remained sluggish.

Automobiles: Weak Quarter with Uncertain Outlook

The auto sector reported a 2% YoY decline in profit for Q3, while total revenue grew 7% YoY, whereas EBITDA declined 2% YoY. While rural demand showed signs of revival, the broader industry outlook remained uncertain for FY26.

The auto segment (excluding tractors) saw 3% YoY growth in domestic volumes during the quarter, with rural demand outpacing urban. The PV segment led the growth at 4.5% YoY, driven by 11.5% YoY and 2% YoY increase in SUV and van volumes, while passenger car volumes declined 8% YoY. This growth was partly fueled by festive season discounts and new launches, MOFSL said.

Metals & Commodities: Earnings Downgrades Weigh on Performance

The metals sector faced significant earnings downgrades, with major companies like JSW Steel (-9.5%) and Tata Steel (-5.9%) revising their outlook downward. Global commodity price fluctuations and weaker domestic demand contributed to the sector’s struggles.

Earnings Revisions and Market Outlook

The Nifty EPS estimates for FY26 and FY27 were cut by 1.4% and 1.8%, respectively, mainly due to downgrades in ONGC, HDFC Bank, JSW Steel, Axis Bank, and SBI. Meanwhile, the top earnings upgrades included Bharti Airtel, Hindalco, Tata Motors, Kotak Mahindra Bank, and Maruti Suzuki India.

While the broader market correction has accounted for some of the potential earnings disappointments, mid- and small-cap valuations remain expensive. The Nifty 50 currently trades at a 12-month forward P/E of 19.3x, below its long-period average of 20.5x, as per MOFSL.

Investment Strategy: Bias Toward Large Caps

Given the sectoral trends and earnings revisions, MOFSL’s preference remains toward large-cap stocks, which have a 76% allocation in model portfolios. The investment strategy remains Overweight (OW) on Consumption, BFSI, IT, Industrials, Healthcare, and Real Estate, while maintaining an Underweight (UW) stance on Oil & Gas, Cement, Automobiles, and Metals.

With corporate earnings growth expectations moderating, investors should remain cautious while selectively positioning themselves in fundamentally strong sectors.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.