Auto and BFSI seen driving India Inc’s earnings growth this financial year

• The March quarter saw India’s top listed companies meeting analyst expectations, primarily driven by auto and BFSI sectors.
  
• These two sectors are expected to power India Inc’s earnings again in FY24.
  
• Moderating inflation, healthy macroeconomic indicators and robust balance sheets are expected to keep India Inc’s earnings robust.
  

India’s top listed companies’ March-quarter earnings largely met analyst expectations, driven by strong growth in two critical sectors – auto and banking, financial services and insurance (BFSI). Analyst consensus is that these two sectors will continue to power India Inc’s earnings going forward.

“Nifty's earnings growth stood at 16% year-on-year as against estimates of 14% YoY. The overall performance was driven by the BFSI and auto sectors that posted 43% and 115% YoY earnings growth,” said brokerage firm Motilal Oswal.

India Inc’s performance remained healthy during the March quarter despite a challenging global macroeconomic environment and concerns of an economic slowdown in the developed markets.

“Of the 21 sectors under our coverage, six sectors reported profits above our estimates, eight sectors reported in-line profit numbers and seven sectors reported profits below our estimates,” Motilal Oswal added.

The Indian banking sector was a standout, delivering a second consecutive quarter of stellar performance.

In the auto sector, industry leaders Maruti Suzuki and Tata Motors beat analyst expectations – Tata Motors bounced back to profitability in FY23, on the back of robust performance of its British subsidiary, Jaguar Land Rover.

“In-line revenue growth and strong earnings beat substantiate an earnings up-cycle trend in India. Broad market earnings underperformed, but remained strong,” said global brokerage Morgan Stanley.

Auto and BFSI sectors are expected to lead growth once again, with others like telecom and consumption also amongst top favourites.

Outlook robust

Morgan Stanley reported a slight beat in terms of earnings and profitability in its coverage universe – while it had estimated revenue and profit growth of 13% and 19% respectively in Q4, the reported revenue and profit grew at 14% and 24%, respectively.

Robust growth in revenue and profits has brought cheer back to the Indian markets as well – benchmark indices Nifty50 and the Sensex have entered positive territory after volatility earlier this year. While the Nifty50 is up 2%, the Sensex is up 2.4% so far in 2023.

It’s not just India Inc that has delivered healthy growth – the Indian economy handsomely beat economist expectations, expanding by 6.1% in the March quarter as against the expected 5% growth.

For FY23, India’s gross domestic product (GDP) growth came in higher at 7.2%, beating the government’s own expectations of 7% growth.

Foreign investors have also flocked back to the Indian markets, with foreign institutional investor (FII) flows surging to a 27-month high in May at ₹27,856 crore. Foreign portfolio investors (FPIs) have pumped ₹43,838 crore into Indian equities, the highest in the last 9 months.

“With healthy macros, range bound oil prices, a robust fiscal balance sheet and moderating inflation, the outlook for the market looks optimistic,” Motilal Oswal said.

These sectors see downgrades

However, there are some pockets of weakness as well, resulting in downgrades. According to analysts, metals, energy and utilities are the sectors that saw the most downgrades.

The IT sector, which has been struggling due to a slowdown in its core markets of the US and Europe, has seen the most downgrades from Morgan Stanley.

Analysts at IIFL Securities echoed similar sentiments, stating that they are ‘negative’ on the IT sector. Analysts at Motilal Oswal reiterated their ‘neutral’ stance on the sector.

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