Indian companies are going to announce their earnings for the January-March 2022 quarter over the next few weeks and these earnings will determine the trajectory of the stock markets in the near term.
Domestic brokerage Motilal Oswal has a positive outlook on corporate earnings for the quarter under review. It expects Nifty50 companies to post another quarter of high double-digit growth. It expects a March quarter earnings growth of 23 percent year-on-yer (YoY).
According to the brokerage, more than half of the incremental growth is steered by banking, finance and insurance (BFSI), led by a modest revival in credit growth and improvement in asset quality trends.
The brokerage forecasts private and PSU banks to report earnings growth of 30 percent and 36 percent in FY23, respectively. Overall, its Banking coverage universe is anticipated to report earnings growth of 33 percent in FY23, after posting strong growth of 46 percent over FY22E, it added.
Credit growth picking up
"Systemic loan is showing signs of a revival with credit growth accelerating to 8.5 percent YoY, underpinned by strong disbursements across segments. Disbursement growth across several retail products has surpassed the pre-COVID levels, while the Corporate segment too witnessed a revival with a focus on high-rated corporates primarily for working capital needs. We expect the capex cycle to pick up during the second half of FY23, which will drive further recovery in loan growth over FY23E," noted the brokerage.
It further informed that among the segments – Home, Vehicle, Tractor, Unsecured and Small Business will continue to do well in the March quarter while commercial vehicles and microfinance are likely to trail the normalized levels.
It estimates systemic loan growth of 9 percent and 11.8 percent YoY for FY22 and FY23, respectively.
Robust asset quality
In the March quarter, the brokerage expects the slippages to remain modest, which along with healthy recoveries and upgrades would result in an overall improvement in asset quality – barring the mid-sized banks that could see stable trends. The Retail and SME segments could experience some slippages, however, the Corporate segment is likely to remain resilient, it added.
As per MOSL, earnings for private lenders are likely to remain strong, led by healthy business growth/fee income and a sustained reduction in credit cost.
"Loan growth is projected to remain strong driven by the Retail and SME segments, while Corporate segment growth would be supported by working capital requirement and a decline in unutilized credit," it added. It sees private bank loans growing 15 percent and 17 percent over FY22 and FY23, respectively. MOSL estimates ICICI Bank to deliver 16 percent YoY loan growth over Q4FY22 and Kotak Bank and Axis Bank to grow 20 percent and 15 percent YoY, respectively. HDFC Bank and IndusInd Bank reported growth of 21 percent and 13 percent YoY, respectively, it added.
The brokerage also predicted that slippages are likely to remain modest and it is optimistic on asset quality.
"Slippages are likely to remain modest over 4QFY22 across segments, barring the MFI business, which could see some tail stress. This would result in an overall improvement in asset quality," it said.
It forecasts PSBs to experience continued traction in their operating performances, supported by a recovery in business growth and a sustained reduction in provisions even as opex could remain slightly elevated and treasury performance muted.
Slippages would continue to subside, which along with healthy recoveries would reinforce the asset quality performance, it added.
It expects premium growth to remain modest on slower ULIP growth; to be offset by robust demand for Annuity/Guaranteed and Credit Life products. Protection demand is likely to remain subdued, albeit could see improving trends, MOSL added. SBI Life would post an annual premium equivalent (APE) growth of 8 percent YoY, while Max Financial and ICICI Prudential would see a decline of 4 percent and 6 percent, respectively, in Q4FY22E. It also projects the value of new business (VNB) growth to remain in a modest range of 3-8 percent across all players. However, VNB margins are likely to see a sequential expansion, it noted.