By Jyotivardhan Jaipuria

Capital markets signed off FY24 with a stellar 29%/60%/70% returns for the  Nifty, Nifty Midcap 100 and Nifty Smallcap 100, respectively. India’s market cap reached $4.4 trillion, making it the fifth largest in the world.

The Nifty-50 delivered a 26% earnings growth in 9MFY24. High-frequency data (GST collections, auto monthly numbers, power demand, PMI data, etc.) indicate that the earnings momentum will sustain. The sectors that had underperformed on the earnings front for the past several years, such as automobiles, real estate, capital goods, infrastructure, industrials, utilities, hotels, and PSUs, also made a strong comeback in FY24. The pick-up in government capex continues to boost sectors such as railways, defence, capital goods and utilities.

However, the earnings momentum in the last quarter of the previous fiscal likely slowed down. After a near 30% growth in earnings in H1FY24, Q3 had a 17% earnings growth which will weaken further to single digit in Q4.

As the Q4FY24 earnings season is beginning, we expect Nifty earnings to grow 6% YoY. Excluding global commodities (i.e. metals and O&G), Nifty will post a 9% YoY earnings growth. EBITDA margin for Nifty-50 (excluding financials) is likely to remain flat at 19.8%. Overall earnings growth is likely to be driven once again by domestic cyclicals, such as BFSI and auto, while contributions from healthcare and cement will improve. Sectors like capital goods and technology are expected to report moderate earnings growth of 5% and 4% YoY, respectively, while metals and spec chemicals earnings are going to decline by 12% and 38% YoY, respectively

BFSI’s earnings are anticipated to be healthy and will be driven by private banks (up 15%) and NBFCs (up 23%). PSBs are expected to post earnings growth of 14% YoY. This growth will be aided by credit growth due to the sustained momentum in retail and business banking, along with a gradual recovery in the corporate sector. The SME and real estate sectors are experiencing strong growth. Home loans, vehicle finance and small business loans continue to drive positive momentum, while unsecured loans are expected to witness some moderation in growth amid the RBI’s RWA regulation.

We expect NIM compression to moderate further in 4QFY24. Slippages are likely to remain under control, which should drive the continued improvement in asset quality ratios.

Cement sector earnings are projected to jump 32% YoY on a weak base of 4QFY23. The sector is expected to report its third consecutive quarter of strong earnings growth after posting an earnings decline for seven quarters. We estimate companies to report strong volume numbers as prices have corrected across regions during the quarter. As a result, we believe the average EBITDA/tonne will decline.

The healthcare sector is likely to report earnings growth of 33% YoY in 4QFY24. Sales growth would be aided by a strong traction in US generics and a decent performance in the domestic formulation segment.

(The author is founder and MD, Valentis Advisors Pvt. Ltd.)