The top 50 companies from the listed universe are expected to exit FY2022 with a double-digit growth in earnings, despite the severity of the successive waves of the pandemic. Earnings per share (EPS) of Nifty50 companies is expected to grow 21.2% to Rs 886.1 during the year, as banks and oil firms are expected to put up a strong show during the concluding quarter of the fiscal.
A robust growth in revenues and lower loan provisions are expected to boost profitability for banks, while higher realisations and healthier refining margins will drive profits of oil companies. Financial services and oil & gas have a combined weightage of 49% in the Nifty50 index. However, rising input costs could dent profitability of auto, industrial and cement companies, where most earnings cuts were seen over the last one month. Metals and telecommunications have seen the most upgrades during the period.
Analysts at Credit Suisse expect the FMCG volume growth to further slow down as companies continue to push through price increases to offset raw material inflation.
“With companies taking larger price increases to pass on inflationary pressures, we believe volume growth will further weaken. Segments catering to lower-income consumers are likely to see a greater slowdown. The most impacted will be soaps and biscuits as they are mass categories and the pricing increase has been passed on as grammage cuts,” the foreign brokerage said in its Q4FY22 preview.
The Nifty50 is currently trading at 19.6 times its twelve-month forward earnings, which is 14% lower than its peak of 22.8x in October. Nevertheless, India commands a premium over its emerging peers’ equity valuations. While South Korea’s Kospi trades at 10.4x its one year expected earnings, Taiwan TAIEX and Jakarta Composite are trading at 12.4x and 6.2x, respectively. Brazilian Bovespa is available at 7.6x of its estimated earnings.