Now that the June quarter (Q1FY23) earnings season is done and dusted, brokerage house Motilal Oswal (MOSL), in its review note, stated that the corporate earnings for Nifty and MOSL Universe were below their expectation. Miss in heavyweights such as RIL, Tata Motors and OMCs like BPCL, and HPCL drove the aggregate miss, it added.
As per the brokerage, the earnings downgrade/upgrade ratio for the MOSL Universe for FY23 stands balanced with 78 companies seeing upgrades of more than 3 percent, while 79 companies seeing downgrades of over 3 percent. Meanwhile, in the Nifty50 index, while 27 stocks saw upgrades, 23 stocks saw downgrades for FY23. Downgrades, however, were steeper than the upgrades, noted the brokerage.
Eleven Nifty companies saw an upgrade of over 5 percent in their FY23 EPS estimate, while nine saw a downgrade of over 5 percent, highlighted the brokerage.
Apart from these, in the Nifty50 index, M&M, Bajaj Finance, Axis Bank, HUL, Bajaj Auto and IndusInd Bank saw earnings upgrades of over 5 percent each. Meanwhile, Hero Moto, RIL, Wipro and Divi's Labs saw FY23 downgrades of over 5 percent each, informed the brokerage.
MOSL further pointed out that the spread of earnings has been decent, with 68 percent of the MOSL Universe either meeting or exceeding its profit expectations. Of the 215 companies under its coverage, 100 exceeded estimates, 68 delivered a miss, and 47 were in line on the PAT front, noted the brokerage.
Of the 20 sectors that the brokerage tracks, eight posted a profit above estimates and six sectors each posted profits in line with MOSL's estimates as well as below its estimates.
Like in the March quarter, profit in the June quarter was also entirely driven by the BFSI sector, aided by moderation in credit cost, it pointed out. Meanwhile, the oil and gas sector dragged the aggregates while Consumer, Metals and Cement have beaten expectations. Metals, Healthcare, and Cement reported an earnings decline YoY, while IT earnings were flat in Q1FY23, noted the report.
The brokerage also cut its Nifty FY23 EPS estimate by 2.7 percent to ₹843 from ₹866 earlier due to notable earnings downgrades in ONGC, RIL, BPCL, and Tata Motors. It now expects the Nifty EPS to grow by 15 percent and 18 percent in FY23 and FY24, respectively.
"Corporate earnings in 1QFY23, were a miss after several quarters, with some heavyweights from cyclical sectors driving the aggregate miss even as spread of the earnings and accompanying corporate commentary was good. Good monsoons and a normal festive season after two years should augur well for Consumption oriented sectors. However, the growth is still lopsided and is being led by BFSI," said the brokerage.
As the benefit of the recent moderation in commodity cost starts to accrue in H2FY23E, it expects other sectors like Consumer, Autos and Cement to contribute too.
The market has bounced back smartly in the last one-and-a-half month, wiping out its entire decline YTD. The Nifty is now trading 2 percent higher YTD and is strongly outperforming global markets, despite a sharp FII selling from Oct’21 to Jun’22.
"With this rally, the Nifty now trades at 21x FY23E EPS, comfortably above its LPA, and offers limited upside in the near term, in our view. The upside from here on will be a function of stability in global and local macros, and continued earnings delivery versus our expectations," it added.
It maintains an overweight stance on BFSI, IT, Consumer, Telecom and Auto with underweight and neutral stance on Energy, Metals, and Healthcare.