Weak exports, commodities to hit India Inc.’s Q3 earnings

According to data compiled by Mint on 41 Nifty companies, barring financial services firms and banks, net profit growth in Q3 will be just 3.1% compared to the year earlier. However, net profit growth for 48 Nifty companies, including banks and financial services, will be at 9.6%.

“We believe broad-based earnings momentum, which remained robust for multiple quarters, might take a brief pause in Q3FY23,” said Neeraj Chadawar, head, quantitative equity research, Axis Securities.

While the earnings season may see sequential margin expansion driven by a moderation in commodity prices and an uptick in credit growth, Chadawar expects export-oriented themes to lag.

Margins might expand during the quarter, but the demand commentary will remain critical, said Chadawar.

With the banking, financial services and insurance sectors likely to report strong earnings, domestic consumption may support overall earnings in Q3.

With most segments witnessing double-digit growth during the festive season, consumption has been steady, and discretionary will continue to outperform on earnings, said Manish Jain, Coffee Can fund manager, Ambit Asset Management.

Consumer companies are expected to report a decent set of numbers led by calibrated price hikes to combat inflation. However, rural demand will be a key metric to watch out for in case of consumer-focussed companies, said analysts. Management commentaries on raw material trends and rural versus urban demand remains key monitorables during the quarter, they added.

Banks, non-banking financial companies (NBFCs), automobiles and capital goods firms are likely to see highest earnings growth from the year ago, said PhillipCapital India Research analysts on their coverage universe.

Buoyant growth is also expected for fast-moving consumer goods (FMCG), information technology, infrastructure and power finance companies, while retailers, agricultural input and energy firms may see marginal growth.

Metals, cement, pharmaceuticals, logistics and specialty chemical companies are likely to report a contraction in earning. Considering that metal prices were under pressure in Q3, while cement prices did not see a significant recovery, companies’ earnings maybe limited. Besides, with demand for mass categories remaining under pressure due to inflationary pressures on discretionary income, it may impact the retail sector, said analysts.

Earnings of oil marketing companies (OMCs) should rebound from the losses incurred in the September quarter, and metals may see some margin improvement, said analysts at Jefferies India.

In view of the overall expected performance of India Inc. in Q3, analysts do not expect to see earnings upgrades or downgrades. “Q3 should be able to deliver in line with consensus estimates and we don’t foresee any downgrades”, said Ambit’s Jain.

However, a section of experts is of the view that the commentary on domestic and exports demand will be crucial. Earnings momentum is likely to sustain for the BFSI sector and it is likely to continue to be an outlier even in the current volatile environment, said analysts.

Motilal Oswal Financial Services Ltd analysts said: “We remain overweight on the financials, capex and autos, and raising weights in healthcare, but remain underweight on metals, energy, utilities.”

Even in view of the volatile global situation and a looming recession, Indian equities will remain intact, said analysts, as Indian corporates continue to see an uptick in earnings momentum post-covid-19.