India Inc earnings season kickstarts this week; here’s how it may look

Brokerage firm Motilal Oswal Financial Services anticipates Nifty earnings to rise 25 percent on year for the April-June quarter. The firm also expects sales and EBITDA (Earnings before interest, taxes, depreciation, and amortisation) to rise 4 percent and 17 percent year on year, respectively.

"Earnings growth would be fuelled by BFSI (banking, financial services and insurance) and auto sectors while the oil & gas sector would report a 3x surge in on-year profits, underpinned by the improvement in marketing margins of the OMCs (oil marketing companies)," MOFSL said in a report.

Philips Capital attributes price hikes, volume growth, better mix and a favourable base as factors aiding strong growth for automobiles, while strong sequential loan growth, stable margin and asset quality are key earnings drivers for banks. "In NBFCs, commercial vehicle financiers should deliver strong loan and earnings growth. We can expect a breakout in loan growth for gold financiers. Diversified financiers like BAF should deliver over 30 percent loan growth," the brokerage stated in its report.

Aside from these, Nuvama Institutional Equities sees sectors like infra, industrials, internet and pharma as other bright spots, likely to report double-digit growth in earnings. On the flipside, metals, and chemicals are expected to report a decline in quarterly profits due to weak demand trends and lower output prices.

Margin improvement on the cards

India Inc has been struggling with weak operating metrics in recent quarters but with input costs moving downwards that pain is likely to ease in Q1.

Nuvama pointed out that in FY23, excluding BFSI, EBITDA margins have shrunk over 300 basis points from their peak. However, with easing input costs, MOFSL expects the EBITDA margin for Nifty companies, excluding OMC and financials, to expand 110 basis points on year to 20.8 percent during the quarter under review.

Among sectors, Nuvama pegs maximum margin expansion in autos, pharma, internet and consumer services. On the other hand, Philip Capital pegs maximum EBITDA growth in automobiles, banks, NBFCs, and pharma. Easing raw material costs and resilient demand are seen aiding automobile and pharma sectors, Philip Capital highlighted.

Not out of the woods yet

For FY24, the consensus forecast suggests 18 percent EPS (earnings-per-stock) growth as against FY23's 10 percent growth. Though this might be a strong start to FY24, Nuvama believes earnings estimates could be at risk with both consumption and exports slowing down and commodities being in deflation.

MOFSL also slashed its FY24/FY25E Nifty EPS by around 1 percent/0.5 percent to Rs 964/Rs 1,113. "We now forecast the Nifty EPS to grow 20 percent/15 percent in FY24/FY25," the firm wrote in its report.

Moreover, the report highlighted that financials and oil & gas are likely to account for 63 percent of the incremental FY24E earnings growth for Nifty. "Excluding BFSI, we expect Nifty FY24 earnings to grow at 20 percent; while excluding metals and oil & gas, Nifty FY24 earnings are likely to post 16 percent on year growth," MOFSL said.

Kotak Institutional Equities, also pegged EPS for Nifty 50 at Rs 925 for FY24 and Rs 1,061 for FY25.

As for the top picks, Nuvama remains overweight on margin-sensitive sectors like FMCG, domestic autos, cement, telecom and internet. Among large-caps, MOFSL is bullish on ICICI Bank, ITC, L&T, Mahindra & Mahindra, Infosys, Ultratech Cement, Avenue Supermarts, Titan and Zomato.

Within the mid-cap space, the firm prefers names like M&M Financial Services, Ashok Leyland, Metro Brands, Indian Hotels and Godrej Properties.

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