How Nifty companies performed in July-Sept quarter? BFSI drives; Commodities drag – check sector-wise analysis, highlights

Amid a volatile global macro backdrop, India Inc provided succor, brokerage Motilal Oswal said in its report as the second quarter earnings of the financial year of the 2022-23 (Q2FY23) were driven by strong Financials performance and lesser-than-estimated losses in oil marketing companies (OMCs).

Markets have bounced back smartly and wiped out the entire year-to-date decline. The Nifty is now up around 4 per cent YTD. With this rally, Nifty now trades at 22x FY23E and offers limited upside in the near term, the brokerage said.

Q2 earnings growth for Nifty stood at 9 per cent against flattish estimates. The aggregate show was marred by a sharp drag from global commodities such as Metals and O&G, which posted a 67 and 29 per cent year-on-year (YoY) earnings decline, respectively.

Excluding these, Nifty posted a solid 33 per cent earnings growth fueled by BFSI and Autos. Along with Metals and O&G, Cement and Healthcare sectors too dragged Q2FY23 earnings.

Heavyweights, such as SBI, Axis Bank, ITC, Kotak Mahindra Bank, ONGC, Sun Pharma, and Bharti Airtel recorded a stronger-than-expected performance, leading to the beat. On a three-year basis (Q2FY20 -Q2FY23), Nifty’s earnings posted a 19 per cent CAGR (Compound Annual Growth Rate).

Nifty posted and 3% earnings growth in the first half of FY23. Excluding Metals and O&G, Nifty had 32 per cent YoY earnings growth in H1FY23.

Motilal Oswal has raised FY23E Nifty EPS (Earnings Per Share) by 2.5 per cent to Rs 837 due to notable earnings upgrades in SBI, Axis Bank, and Coal India and expects the Nifty EPS to grow 14/19 per cent in FY23/ FY24, respectively.

Q2 Sectoral Highlights

Technology: In-line quarter for IT companies despite the challenging macro environment and continued supply headwinds. Tier II companies posted better growth at around 4 per cent sequentially against nearly 2 per cent growth for Tier I companies.

Banks: Growth momentum has remained strong over Q2FY23 propelled by healthy loan growth, margin expansions, and continued moderation in provisions.

Consumer: Overall performance was majorly driven by value as volumes remained subdued on a higher base. While commodity costs have shown signs of stabilization, many of them remain at high levels. Gross margin pressure was higher than expected in Q2FY23.

O&G: OMCs fared better than expected thanks to the relief from the government; City Gas Distributors' disappointed. Implied marketing losses, including inventory for OMCs, recovered to an average of Rs 0.7/liter owing to lower Brent prices even as OMCs did not exercise any price hikes during Q2.

Motilal reckons the upside from hereon will be a function of stability in global and local macros and earnings delivery. It maintains an Overweight stance on BFSI, AUTO, Consumer & IT and an Underweight stance on Energy, Pharma, and Utilities.

The top earnings upgrades in FY23E: Coal India (27%), Axis Bank (17%), SBI (13%), Hindalco (13%), and Britannia (11%).

The top earnings downgrades in FY23E: Tata Motors (Profit to Loss), Divi’s (-19%), Asian Paints (-18%), Reliance Industries (-6%), and Wipro (-6%)