India Inc profitability moderated in Q3FY23, as corporate earnings fell below Motilal Oswal’s expectations. The commodities sector largely dragged in the October-December quarter, financials and autos held the fort, while a broad-based slowdown in consumption, both discretionary and staples, affected earnings, Motilal Oswal said in a research report.
Global Cyclicals weighing on Nifty
Nifty 50 companies were expected to clock a 14% on-year earnings growth for the quarter ended 31 December, 2022; however, the growth stood at 11%. The overall performance was impaired as a result of a sharp drag in global commodities, namely metals and oil & gas. Discounting the two sectors, Nifty posted a 31% earnings growth on-year, beating expectations of 26% growth by 500 bps. The sectors fueling this rapid growth were BFSI and auto, while cement, healthcare and retail contributed to the drag in the 3QFY23 earnings.
BFSI and auto buoying earnings season?
The banking, financial services and insurance sector along with automobiles did the heavy-lifting in Q3FY23. Heavyweights such as Reliance Industries, SBI, ITC, Tata Motors, Kotak Mahindra Bank, HUL, Maruti Suzuki, M&M, Bajaj Auto, Dr Reddy’s Lab and Britannia recorded a performance that was far stronger than most expected. On a three-year basis, ie, from Q3FY20 to Q3FY23, Nifty’s earnings recorded a 19% CAGR, according to Motilal Oswal research.
Earnings in FY23 so far
In 9MFY23, Nifty posted a growth of 14%. If the global cyclicals that were dragging the index’s earnings, metals and oil & gas, were to be excluded, the index would report 28% on-year earnings growth. As a result of the slightly disappointing earnings season, Motilal Oswal trimmed their estimate for Nifty’s FY23E EPS by 1% to Rs 812 from Rs 820. This is especially due to the notable earnings downgrade in the metals space. The brokerage firm’s estimate for FY24’s EPS remains at Rs 993 as downgrades in Reliance Industries, Bharti Airtel, Tata Steel and JSW Steel were offset by the upgrades in ONGC, SBI, Tata Motors, and Coal India.
Estimates for FY24
Motilal Oswal upgraded the earnings outlook for these companies in FY24:
- Tata Motors (19%)
- ONGC (11%)
- Bajaj Auto (6%)
- Dr Reddy’s Labs (5%)
- Coal India (4%)
Motilal Oswal downgraded the earnings outlook for these companies in FY24:
- Divi’s Lab (-33%)
- Bharti Airtel (-25%)
- Eicher Motors (-11%)
- JSW Steel (-8%)
- Tata Steel (-6%)