After a stellar show in the final quarter of FY23, banking and finance companies emerged as the top picks of analysts in May, with heavyweights like SBI, HDFC twins, ICICI Bank and Axis Bank garnering zero "sell" calls.
In contrast, the information technology (IT) pack had to bear the brunt of the Street’s ire as the slowdown in the West and the banking crisis in the US – the bread-and-butter market for India’s software services industry – led to a forgettable quarter
Overall, companies with better earnings visibility scored over their counterparts mired in macro and operational challenges. A bird in hand proved better than two in the bush.
The 'buy' list
The two companies with the perfect optimism score — zero "sell" or "hold" calls — were SBI Life and Adani Ports and Special Economic Zone.
SBI Life Insurance Company declared a decent set of numbers in Q4. Net profit rose 15 percent year on year (YoY) to Rs 777 crore, while net premium income climbed 14 percent to Rs 19,897 crore.
The gross written premium (GWP), a key metric to assess an insurance company's fiscal health, jumped 15 percent for FY23 to Rs 67,320 crore.
Analysts were heartened by the all-round improvement in operational metrics.
“The management is confident of delivering 20–25 percent business growth in FY24E on the back of healthy demand and improving penetration owing to regulatory changes. The diversified distribution channels are expected to contribute significantly to the overall growth of the company,” brokerage KRChoksey said in a note.
Also read: Q4 Results Scorecard: The agony and the ecstasy
The company has been maintaining its cost leadership among the private players over the past few years, despite an increase in operating costs led by increased spending on new initiatives, it added.
Adani Ports and Special Economic Zone (APSEZ), too, posted strong quarterly numbers, with revenues soaring 40 percent to Rs 5,797 crore, supported by Haifa port consolidation.
“As APSEZ embarks on becoming India's largest integrated transport utility company by 2030, it is strengthening its capabilities in all logistics segments (ports, warehousing, last mile delivery, ICDs, etc). Hence, it will offer end-t- end service to its customers thereby capturing a higher wallet share and also making the cargo sticky in nature,” analysts at ICICI Direct said.
In tandem with other Adani group stocks, APSEZ has rebounded following the rout triggered by American short-seller Hindenburg Research’s report in late January. The report accused the port-to-power conglomerate of stock manipulation and other wrongdoings. The group has denied the charges.
APSEZ is up over 87 percent over its 52-week low of Rs 394.95 hit on February 3.
The other prominent names figuring on top of analysts’ buy lists include SBI, HDFC Bank, ICICI Bank, HDFC and Axis Bank.
Banking and finance firms had a standout quarter, marked by robust disbursements despite rising rates, healthy interest margins and stable asset quality.
Public sector banks’ cumulative profit crossed the Rs 1 lakh crore-mark in the financial year 2023, with market leader SBI accounting for nearly half of the total earnings.
From posting a net loss of Rs 85,390 crore in 2017-18, PSBs have come a long way.
“The banking sector reported a strong 4Q FY23, driven by healthy loan growth, stable margins, and continued asset quality improvements. There were numerous drivers of credit expansion, with the retail and MSME sectors exhibiting robust growth and the corporate book displaying a healthy rebound,” brokerage Motilal Oswal said.
Declining fortunes
JSW Steel topped the pessimism list with 17 "sell", nine "hold" and just six "buy" calls.
Its Q4 performance was mixed -- consolidated net profit rose 13 percent to Rs 3,664 crore, even as revenue from operations stayed flat at Rs 46,962 crore.
The company also said it recorded higher-ever crude steel production as well as saleable steel sales during the quarter.
The narrative around the metal space has turned negative, given that China's demand has not really come up despite its post-Covid reopening, while recession fears in the West are further weighing on outlook.
“Though global steel consumption is facing headwinds due to inflationary pressures, high interest rate pressures, the Russia-Ukraine conflict and a slowdown in China, steel demand is robust in the domestic market,” analysts at Motilal Oswal said.
Also read: Head-to-head: TCS trounces Infosys on all fronts of financials
Some of the most prominent names on this list, however, are IT companies.
India’s IT giants have been clobbered by project cancellations, margin contraction and slowing order inflows amid the gathering clouds of recession in the West.
“We remain underweight on IT as a sector. The macro overhang witnessed post the unfolding of regional bank issues in the US and EU impacted the growth and margin exit rates in March 2023. The companies which reported March 2023 results… expect some spillover of this weakness into the June 2023 quarter as well,” said Shibani Sircar Kurian, Senior EVP & Head-Equity Research, Kotak Mahindra Asset Management Company.
Initial expectations of margin improvement have been kept under check on account of negative operating leverage, given the sudden ramp-downs the sector had seen.
“Overall, we expect the operating environment over the next two quarters to remain challenging due to the macro issues and cautious stance of companies on discretionary spends,” she added.
Pharma and auto companies, too, attracted a raft of "sell" and "hold" calls due to factors like revenue collapse post-Covid, negative consumer sentiment due to elevated inflation and demand headwinds.
Also read: Next 2 quarters likely to be challenging for IT sector, says Shibani Kurian of Kotak Mahindra AMC
Road ahead
Analysts say the bulk of Nifty’s earnings growth in FY24 is expected to come from sectors linked to investment and domestic consumption.
“Nifty ended FY23 with an 11% EPS growth on a high base of 34% growth in FY22. Earnings though remain lopsided with BFSI driving almost entire incremental earnings in FY23. With healthy macros, range-bound oil prices, a robust fiscal balance sheets, and moderating inflation, the backdrop for the market is quite optimistic,” Motilal Oswal said.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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