Q2FY23 Preview: Nifty companies may report flat earnings Y-o-Y – Auto, BFSI to aid; metals, oil & gas to drag

Q2FY23 Preview: The Nifty50 companies’ earnings in the second quarter of the financial year 2022-23 may remain flat year-on-year, Street estimates in its results preview. The July-September earnings season begins today with IT heavyweight TCS reporting strong performance during the quarter.

Excluding metals and oil and gas, Motilal Oswal expects Nifty companies to post a solid 30 per cent earnings growth each, fueled by BFSI (Banking, Financial Services, and Insurance) on improving asset quality and autos amid easing semiconductor issues and positive demand outlook.

Sectors focused on domestic consumption/investments are likely to outperform the sectors dependent on global demand/cyclicals/commodities, the domestic brokerage said, adding that the earnings will be dragged by cement and healthcare apart from Metals and oil and gas.

Motilal Oswal maintains an Overweight stance on BFSI, Auto, Consumer, and IT sectors, while an Underweight stance on Energy, Pharma, and Utilities.

Meanwhile, YES Securities mentioned that the July-September quarter will mark the fifth consecutive quarter of contraction in operating margins on a year-on-year basis. However, margins are likely to expand flat sequentially, indicating signs of bottoming out in EBITDA margins, it added.

The earnings of Nifty50 companies will mainly be driven by auto, which is aided by a low base, and FMCG including paints due to price hikes, another brokerage, Antique Stock Broking said.

Sharp de-growth in metals is seen due to lower realization and lag in terms of the full benefit of lower input cost, while the cement sector may show poor performance amid peak cost and weak seasonal realization, and OMCs may register mute results on the back of inventory losses, poor GRMs, and negative diesel retail margins, the brokerage said while citing the reasons.

Antique Stock Broking expects, the key focus would be on management commentary on the overall demand environment in the backdrop of elevated inflation, price and interest rate hikes, and slowing global growth.

The Nifty index is now trading at a P/E of 18.8x 12-month forward earnings, in line with its long-period averages (LPA), however, the premium versus emerging markets has expanded notably given the relative strength in corporate earnings as well as better macro-management by the RBI/government, Motilal Oswal said in its report while citing earnings expectations.