How have Nifty companies fared in July-September 2022? Analysts bullish on these sectors

As we come to the end of Q2 earnings, analysts note that the earnings by Nifty companies have been largely in-line with expectations so far. According to Motilal Oswal, Strong earnings from heavyweights such as Reliance Industries, HDFC Bank, TCS, ICICI Bank and Infosys has led the performance of the index companies. Strong show from financials and and lesser-than-estimated losses in oil marketing companies (OMCs) helped the Nifty companies to meet estimates. 

How have Nifty companies fared in terms of Revenue Growth? 

As seen from the chart above, Nifty companies reported an aggregate 30.2% rise in aggregate revenue in Q2. Here are a few highlights: 

• The topline growth was led by oil & gas, auto and power sectors. In the auto space, the rise in revenue growth was due to commodity led rise in ASPs and healthy volume growth amid festive cheer. 
• Total industry sales in Q2FY23 were at 73.1 lakh units (up 15% QoQ), with domestic dispatches rising 22.6% QoQ to 60.5 lakh units whereas exports were down 12% QoQ to 12.5 lakh units, according to research from ICICI Direct. 
• FMCG companies witnessed high revenue growth largely driven by good product mix and pricing. The sector’s volume growth has been negative for a fourth consecutive quarter. 
• Rural demand has been sluggish with a 3.6% volume dip in rural India (according to NielsenIQ). 
• In the IT sector, Tier I companies reported average constant currency growth of 16.3% on a YoY basis while Tier II companies posted CC growth at an average of 18.8% on a YoY basis, noted ICICI Direct.

How have Nifty companies fared in terms of Net Profit in Q2?

As seen from the chart above, Nifty companies reported an aggregate 11.2% on-year drop in aggregate net profit in Q2. Here are a few highlights: 

• Sequential growth at the index level was driven by the auto (decline in loss at Tata Motors, JLR), capital goods, FMCG and IT space. The performance was muted in the metals space, given the sharp correction in metal prices amid high raw material inventory, according to ICICI Direct.

How have the various sectors fared in the July-September 2022 period? 

• As seen from the table above Oil & Gas, Healthcare, Automobiles, Private Banks and PSU banks have reported earnings above estimates. 
• Real estate, Metals, Cement and Insurance firms have reported earnings below estimates in the July-September 2022 period. 
• Profit growth (on-year) in the Nifty so far is around 3%. Revenue and EBITDA YoY growth stands at 25% and -1% respectively, according to analysis by ICICI Securities. 
• Overall, companies have reported better sales numbers than expectations in the Motilal Oswal universe of 98 companies. 
• Overall increase in aggregate profit during the July- September 2022 period for the NSE200 universe was driven by banking and financial stocks. 

Outlook for the future

• Analysts noted that margins are likely to stabilize in the second half of the year as soaring commodity prices (including crude) cool off. In this context, the second half of the financial year 2023 is likely to be better than the first half, according to Axis Securities. 
• In the last quarter, domestic-oriented sectors like Banks, Auto, FMCG, Hospitals, Domestic Industrials, and Discretionary have outperformed the export + cyclical-oriented themes. However, with rising concerns over the global recession, monetary policy tightening, and preference for domestic interests, the export-oriented themes are likely to remain muted in the near-term, according to Axis Securities.  
• The brokerage firm noted that value is emerging in PSU stock which has outperformed the broader themes by superior margins. “We believe the outperformance of PSU stocks is likely to continue moving forward. The next bigger trigger for the market will be the budget expectations and some recovery is expected in the domestic cyclical sectors in H2FY23 with a pick-up in the government spending,” noted the company. 
• After the earnings so far, Motilal Oswal has maintained its ‘Overweight’ stance on BFSI, IT, Consumer, Telecom and Autos. 

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