India Inc.’s profitability moderated in the October-December quarter of the financial year 2022-23 (Q3FY23). The earnings were mainly dragged by commodities while financials and auto held the fort.

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The broad-based slowdown in consumption, both staples and discretionary, also hit corporate earnings, during the third quarter, according to domestic brokerage firm Motilal Oswal.

The FY23 December quarter profit for Nifty jumped 11 per cent year-on-year (YoY), fueled by banking, financial services, and insurance (BFSI) and Auto segment, the brokerage said, adding that excluding BFSI, the profit remained flat in Q3.

Heavyweights, such as Reliance Industries, SBI, ITC, Tata Motors, Kotak Mahindra Bank, HUL, Maruti Suzuki, M&M, Bajaj Auto, Dr Reddy’s Lab and Britannia recorded a stronger performance, it added.

Sectoral sales growth: Private Banks (27%), PSU Banks (23%), Automobile (22%), O&G (22%), Retail (21%), Technology (19%) and Cement (16%).

Key sectoral highlights by Motilal Oswal

1) Technology: In-line quarter for IT companies despite the challenging macro environment and easing supply headwinds. After six consecutive quarters of underperformance against tier-2, the tier-1 companies’ revenue growth has outpaced the tier-2 pack within our Coverage Universe.

2) Banks: Reported a resilient Q3FY23 fueled by healthy loan growth, robust margin expansion, and consistent asset quality improvement. Growth trends were broad-based, with the corporate segment too exhibiting a strong recovery. PSBs posted an improvement in their operating performance driven by strong 3-6% QoQ loan growth across banks amid a sharp recovery in the Corporate segment.

3) Automobiles: Volumes in Q3FY23 grew YoY across segments, except two-wheelers. Healthy volume growth was underpinned by improvement in the supply of semiconductor chips and a strong order book, especially in the case of passenger vehicles.

4) Consumer: The overall performance was mainly driven by value, as volume growth remained soft. During the quarter, commodity costs showed signs of stabilisation or decline in some cases, and with the full effect of price hikes kicking in, a few companies reported gross margin expansions too.

The top earnings upgrades in FY24E: Tata Motors (19%), ONGC (11%), Bajaj Auto (6%), Dr Reddy’s Labs (5%), and Coal India (4%).

The top earnings downgrades in FY24E: Divi’s Lab (-33%), Bharti Airtel (-25%), Eicher Motors (-11%), JSW Steel (-8%), and Tata Steel (-6%).

Markets are trading flat Year-To-Date basis and valuations are in the fair value zone with Nifty trading at around 18x FY24E EPS and thus offering room for modest upside if corporate earnings do not see material downgrades ahead, Motilal Oswal said in its view in report.

The brokerage prefers BFSI, IT, Industrials, Auto and Cement and maintained an 'underweight' stance on the energy segment.