Amid a backdrop of mounting global headwinds with a slowdown in growth, higher rates, and geopolitical volatilities, all eyes are on the December quarter (Q3FY23) earnings season. Similar to the last quarter (Q2FY23), the BFSI (banking, financial services and insurance) sector has been leading the growth again in the December quarter.
In a recent interim earnings review report, domestic brokerage house Motilal Oswal (MOSL) pointed out that the Q3FY23 corporate earnings so far have been in line, with the performance of heavyweights, such as Tata Motors, Coal India, Axis Bank, ICICI Bank, HDFC Bank, Maruti Suzuki, and TCS, driving the aggregate.
As of February 2, 2023, 35 Nifty companies have posted their Q3 results. Of that, the brokerage informed that 12 have reported profits below its expectation, while ten have recorded a beat.
These 35 companies constitute 73 percent of the estimated PAT for the Nifty Universe, respectively, 51 percent of India's market capitalization, and 81 percent weightage in the Nifty, revealed the MOSL report.
"Profits of the 35 Nifty companies that have declared results so far have risen 18 percent YoY versus MOSL estimate of 15 percent, fueled by financials. Excluding BFSI, profits would have advanced 12 percent YoY (v/s estimate 9 percent YoY). Further, Nifty profits would have increased 28 percent YoY (v/s est. 22 percent YoY), excluding Metals and Oil & Gas (O&G)," highlighted the brokerage. As of 2nd Feb 2023, 35 Nifty stocks have reported a sales growth of 19 percent YoY versus MOSL prediction of 16 percent, added the report.
EPS: After over 50 percent of Nifty companies have declared their earnings, Nifty EPS remains unchanged, said MOSL. FY23 and FY24 Nifty EPS estimates remain unchanged at ₹822 and ₹990 respectively, as downgrades in Metals and O&G are offset by upgrades in Automobiles and Private Banks, the brokerage pointed out.
Above/below expectations: Among the Nifty constituents, MOSL noted that Tata Motors, Dr Reddy’s Labs, Maruti Suzuki, Bajaj Auto, Reliance Industries, Wipro, HUL, Kotak Mahindra Bank, and Britannia have exceeded its profit estimates. Conversely, JSW Steel, SBI Life Insurance, BPCL, Cipla, HDFC Life Insurance, Asian Paints, Coal India, UPL, and Ultratech Cement have missed their profit estimates.
The 3QFY23 corporate earnings so far have been in line, with the performance of heavyweights driving the aggregate. However, the growth has been led by just BFSI and Autos while Metals, Oil & Gas and Cement have recorded a YoY earnings decline for the quarter, noted MOSL.
Given the continuity of policy focus and pronouncements, th brokerage believes the markets will discount the Union Budget 2023 and shift their focus to the overall growth-inflation paradigm in a challenging global backdrop and corporate earnings growth trajectory, which has remained resilient so far in H1FY23 despite witnessing some challenges with downgrades outweighing upgrades in Q3FY23.
After the recent correction, MOSL said that the valuations are in the fair value zone with Nifty trading at 17.5-18.0x FY24E EPS band and thus offering room for upside if the corporate earnings delivery continues. It prefers BFSI, IT, Industrials, Auto and Cement while is underweight on Energy in its model portfolio.
Until now, the brokerage noted in the Nifty Universe 13 out of the 35 Nifty stocks have seen upgrades/downgrades of over 3 percent. Of that, 6 have seen upgrades of more than 3 percent and 7 have downgrades of over 3 percent for FY24E. Overall, in the 35 Nifty stocks, upgrades are more till now in Q3. 19/35 stocks have seen FY24 upgrades while 16 saw FY24 downgrades.
Top FY24E upgrades: Tata Motors (19.3 percent), Bajaj Auto (5.9 percent), Dr Reddy’s Labs (5.3 percent), and Coal India (4.2 percent).
Top FY24E downgrades: JSW Steel (-7.7 percent), Cipla (-5.7 percent), Ultratech Cement (-5.2 percent), and Reliance Industries (-3.9 percent).
Within the MOFSL Universe, Automobiles, PSU Banks, and NBFC Lending recorded an FY24E earnings upgrade of 7 percent, 3 percent, and 2 percent, respectively. Conversely, Real Estate, Insurance, Cement, Metals, Oil & Gas, and Chemicals-Specialty, and Logistics witnessed an earnings downgrade.