The December quarter (Q3FY22) witnessed healthy corporate earnings despite the unprecedented input costs headwinds. Among the Nifty constituents, 43 percent beat profit estimates while 24 percent missed, brokerage house Motilal Oswal stated in an earnings review report. It added that except metals and oil and gas stocks, Nifty constituents clocked a 12 percent YoY growth at the PAT level (in line with estimates).
Bajaj Auto, M&M, Maruti Suzuki, Ultratech, HUL, Tata Consumer, Axis Bank, ICICI Bank, IndusInd Bank, SBI Life, Bajaj Finance, Cipla, Divi’s Lab, Sun Pharma, Hindalco, ONGC, RIL, Titan, Coal India and UPL are the stocks in the Nifty50 index that have reported higher-than estimated results in the December quarter, stated MOSL.
The brokerage further noted that for FY22E, it has reduced Nifty earnings per share (EPS) forecast by 1 percent to ₹735 from ₹743 earlier. This reduction was largely due to a big downgrade in Tata Motors' earnings.
However, for FY23E, the Nifty EPS expectation remains largely unchanged at ₹874 from ₹872 earlier as downgrades in autos, metals and consumer sectors were offset by upgrades in oil and gas and BFSI sectors, stated MOSL.
The brokerage now expects a 36 percent and 19 percent growth in Nifty FY22 and FY23 earnings, respectively.
"FY23E earnings growth will be led by: a) Automobiles – benefitting from a low base of FY22 (FY22 profits < FY18 profits) and improvement in chip supply, b) BFSI – benefitting from a pick- up in loan growth and asset quality improvement, and c) strong earnings growth in the Technology sector," explained MOSL.
Going ahead, it expects banks, IT, oil and gas and auto sectors to contribute around 100 percent of incremental earnings growth in FY23. However, in FY22, it sees metals being the single largest contributor to incremental earnings growth with 33 percent contribution followed by BFSI (26 percent), oil and gas (25 percent), and IT (9 percent).
Among stocks, top upgrades for FY23E by MOSL include ONGC (29 percent), SBI Life (19 percent), Hindalco (7 percent), Cipla (6 percent) and Maruti Suzuki (6 percent).
Meanwhile, top FY23E downgrades are Tata Steel (-15 percent), Eicher Motors (-11 percent), Tata Motors (-10 percent), Britannia (-7 percent), Coal India (-7 percent), and HDFC Life (-7 percent).
| Stock | FY23E Upgrade (%) | Stock | FY23E Downgrade (%) |
| ONGC | 29 | Tata Steel | -15 |
| SBI Life | 19 | Eicher Motors | -11 |
| Hindalco | 7 | Tata Motors | -10 |
| Cipla | 6 | Britannia | -7 |
| Maruti Suzuki | 6 | HDFC Life | -7 |
| Coal India | -7 |
Going ahead, the brokerage feels that given the global and local macro construct of rising rates, higher crude prices, consequent higher inflation and bond yields, geopolitical flare-ups and rich valuations, volatility is likely to remain elevated and markets to stay sideways until earnings catch up with valuations. It continues to remain overweight on BFSI, IT, consumer, metals, and cement, and underweight on autos and energy in its model portfolio.