Q3 results review: Mixed earnings quarter for Nifty50 pack - financials were outliers; metals and energy among duds

The valuations are in the fair value zone with Nifty trading at 17.5-18.0x FY24E EPS band and hence offering room for upside if the corporate earnings delivery continues.

As many as 35 companies out of 50 from the Nifty50 index have reported 18 per cent year-on-year (YoY) growth in profit for the quarter ended 31 December 2023 according to report published by Motilal Oswal.

These companies constitute - 73 per cent of the estimated profit after tax (PAT) for the Nifty; 51 per cent of India's market capitalization, and 81 per cent of weightage in the benchmark index, the report said.

The December quarter earnings - as of February 2 - for the financial year 2022-23 (Q3FY23) were fuelled by BFSI and Auto sectors, according to domestic brokerage firm

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A slowdown in growth, higher rates, and geopolitical volatilities have had a more pronounced impact on certain sectors. in this, Financials were outliers with a strong show while metal and energy sectors suffered amid uncertainties.

Q3 Performance So Far

1) Technology: The sector reported in-line earnings despite Q3FY23 seasonality coupled with looming macro uncertainties. The tier-1 pack has relatively outperformed the tier-2 set in the December quarter both in terms of topline growth and margins.

2) Banks: Earnings bliss continues for the banking sector with most banks reporting robust margin expansion while asset quality continues to improve. With the exception of HDFC Bank, growth in advances of banks has been healthy at 4-5 per cent sequentially. The largest private lender reported a 2 per cent quarter-on-quarter growth.

3) Automobiles: The initial set of results has been encouraging with almost all the companies exceeding estimates. The key trends supporting the Q3 results are: a) a strong mix leading to a sharp beat on automotive spare parts, b) full benefit of commodities, and c) foreign exchange gains.

4) Consumer: A clear divergence has been visible between staples and discretionary performances in the results declared so far. While expectations were admittedly low from staples owing to weak rural demand in Q3 and a delay in commodity cost decline, the overall expectations were met.

5) Oil & Gas: The sector has bagged mixed results, so far, with GAIL, IOCL and BPCL posting lower-than-estimated results while RIL, PLNG and MRPL reporting results ahead of Motilal Oswal's estimates.

6) NBFCs – Lending: Healthy volume growth combined with higher ticket sizes in vehicle finance has led to strong disbursement momentum for vehicle financiers.

The Q3 corporate earnings, so far, have been in line with the estimates, with the performance of index heavyweights, such as Tata Motors, Coal India, Axis Bank, ICICI Bank, HDFC Bank, Maruti, and TCS, driving the aggregate.

According to the brokerage, the markets will discount the Union Budget 2023 and shift their focus to overall growth-inflation paradigm in a challenging global backdrop and corporate earnings growth trajectory, which has remained resilient so far in the first half of the current fiscal.

The forthcoming RBI policy meeting will be an important policy event to gauge any pause in the near-term monetary tightening measures.

After the recent correction, valuations are in the fair value zone with Nifty trading at 17.5-18.0x FY24E EPS band and hence offering a room for upside if the corporate earnings delivery continues.

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