The sense of dread that gripped investors in the run-up to the June quarter earnings seems to have been unfounded as the performance of corporate India, so far, shows.
The April-June period saw the Nifty lose nearly 10 percent of its value as a weak macroeconomic background led by soaring input costs had investors fearing a sharp deterioration in profitability and a downgrade to earnings estimate for 2022-23.
A quick glance at the earnings of Nifty50 companies which have announced their June quarter results shows that investors’ fears might have been overdone even though results have not been spectacular.
“Results have been far better than what people thought. Barring commodity companies, there has not been too big an impact on margins… companies have been able to pass on costs,” a Mumbai-based fund manager said on condition of anonymity.
In terms of beats and misses, it is a mixed bag but the optimists would be relieved to see that companies with estimate-beating earnings have not fallen off a cliff from the previous quarter when more than half of Nifty companies beat analysts' expectations.
Of the 31 companies part of the Nifty50 index that announced their earnings as of July 29, 14 managed to beat Bloomberg consensus estimate of their net profit, while 14 failed to meet the consensus view.
Leaders and laggards
The sector with most earnings beating estimates has been financial services, with ICICI Bank, Axis Bank, Bajaj Finance and HDFC Bank clocking higher profits than what the Street expected.
Information technology (IT) companies, however, saw the highest number of “misses” in the June quarter led by Infosys, Tata Consultancy Services and HCL Technologies.
High wage costs and cross-currency headwinds saw IT sector profits take a knock in the June quarter.
“[Tech] management commentaries in 1QFY23 have turned cautious, acknowledging a headwind from ongoing global macro-economic challenges, supply-side disruptions due to geopolitical tensions and supply-side issues,” Nomura Financial Advisory and Securities India said in a note.
The surprise package of the earnings, so far, has been Tata Steel. The company was expected to report weak earnings owing to the government’s move to curb exports and a decline in global steel prices. However, the Tata group company managed to sharply beat Street’s estimate driven by its European steel business.
What lies ahead?
If the resilience of the Nifty companies continues when the earnings season wraps up in another fortnight, money managers believe it may further fuel optimism among investors for the remainder of the year.
Benchmark indices have already surged nearly 10 percent in the past month and are on the verge of erasing losses for the calendar year.
According to a recent Moneycontrol survey, the majority of the fund managers expect corporate earnings to grow by 10-15 percent in 2022-23 and they also expect the second half of 2022 to be positive.
“We believe Q2 will be similar to Q1, however, second half results should be much better than the first half of FY23,” said Arpit Shah, director and co-fund manager at Care Portfolio Managers.
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