Motilal Oswal has raised its FY24 projection for earnings from Nifty 50 stocks by 2.5 percent to Rs 988 on the back of robust corporate results that appear potent enough to support India's bullish economic outlook.
Nifty companies reported a 32 percent growth in earnings for the June quarter. The distribution of earnings was notably positive, with 62 percent of its analysed Universe either meeting or exceeding the profit forecasts. Nifty outperformed expectations with a 22 percent on-year growth in EBITDA, surpassing the projected 18 percent.
"We raise our FY24 Nifty EPS by 2.5 percent to Rs 988 (earlier: Rs 964) due to notable earnings upgrades in Tata Motors, JSW Steel, Bharti Airtel, SBI, and Kotak Mahindra Bank. We now expect the Nifty EPS to grow 22 percent/16 percent YoY in FY24/ FY25," Motilal said in a report.
The driving force behind the earnings growth was one again the robust performance of domestic cyclicals, particularly by the BFSI and auto sectors. Within Motilal's universe, BFSI companies reported 60 percent on-year surge in profits, while the auto sector recorded a profit of Rs 17,900 crore as against Rs 1,300 crore a year back.
Excluding Tata Motors, the auto universe displayed a strong 83 percent earnings growth in the first quarter of FY24, far outstripping the projection of a 59 percent rise. OMCs saw a shift from a loss of Rs 18,500 crore to a profit of Rs 30,500 crore in the last one year, thanks to robust marketing margins.
Metals, however, dented the overall corporate results with a steep 40 percent plunge in earnings, primarily driven by poor performance from Tata Steel (a drastic minus-92 percent change), Vedanta (-81 percent), and Hindalco (-40 percent) year-on-year.
IT services too reported subdued performance, characterised by relatively stable median revenue growth on-quarter in constant currency (CC). This was notable in a period that is typically known for its strong seasonal performance.
The MOFSL Universe's performance reflected a mixed scenario of successes and shortcomings, with 36 percent of companies surpassing our predictions and 38 percent falling short of projection at the PAT level. Looking ahead to the earnings trend for the MOFSL Universe in FY24, the ratio of upgrades to downgrades slightly tilted in an unfavorable direction.
Some 66 companies reported earnings upgrades exceeding 3 percent, while earnings downgrades of over 3 percent affected 76 companies. Moreover, the EBITDA margin for the MOFSL Universe, excluding Financials, showed a substantial annual increase, surging by 330 basis points to a level of 17.6 percent.
Motilal Oswal believes the momentum in robust earnings will continue with an estimated earnings growth of over 20 percent for the Nifty in the fiscal year 2023-24. The projected profit pool of the MOFSL Universe is set to achieve a 33 percent on-year growth in FY24, crossing the significant milestone of Rs 10 lakh crore.
The Nifty is trading at a 12-month forward price-to-earnings (P/E) ratio of 18.5x, presenting an 8 percent discount when compared to its own long-term average (LPA). Motilal Oswal maintains an 'overweight' stance on financials, consumption, and automobiles. The brokerage is stays 'underweight' on metals, energy, and utilities, while adopts a 'neutral' position on IT, healthcare, and telecom in its model portfolio.
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