Auto and banking stocks drive Sept quarter earnings as market gurus upgrade FY24 estimates

• Five biggies accounted for 68% of the incremental accretion in earnings during the quarter.
• The auto sector posted a massive 112% year-on-year rise in profit growth, which was primarily led by Tata Motors, M&M and Maruti.
• Analysts upgrade Nifty earnings for FY24 after a stellar September quarter show.
  

Earnings of India’s top 50 listed companies delivered stellar earnings during the September quarter, with many reporting surprisingly hefty profits. According to consensus estimates, the net profit of Nifty50 companies was expected to grow by 21% in the September quarter but instead the net profit grew by 28% year-on-year. Five biggies – BPCL, HDFC Bank, Tata Motors, JSW Steel, and Reliance Industries – accounted for 68% of the incremental accretion in earnings during the quarter.

Clearly, the earnings growth is not broad based but it does show signs of healthy recovery in profitability. Excluding the oil companies, Nifty’s earnings grew 22% year-on-year (against the consensus estimate of 15%). Excluding metals, oil and gas, Nifty’s earnings were up 32% against an estimated 27%.

The earnings growth during the quarter has been driven by domestic cyclicals like auto and banking. The auto sector posted a massive 112% year-on-year rise in profit growth, which was primarily led by Tata Motors, M&M and Maruti. Discretionary consumption is back even if fast moving consumer goods companies are faced with a sharper than expected slowdown. There were no earnings beats in the consumer sector, which saw quarterly profit growth of 17% during the quarter.

According to Motilal Oswal Financial Services, of the 21 sectors under coverage, 10 sectors reported profits above estimates, while nine sectors reported in-line earnings and two were /below estimates. Of the 239 companies under MOFSL coverage, 92 exceeded profit estimates, 66 posted a miss, and 81 were in line. This does indicate a broader trend in earnings trajectory.

For the rest of the financial year, Nifty companies are expected to report earnings growth of 12% in the second half of FY24. For the full year, analysts expect Nifty50 companies to exit with an earnings per share growth of 24% in FY24. The earnings growth for the fiscal year will be driven by auto, oil & gas and banks. These three sectors are expected to contribute to a lion’s share of FY24’s profits, say analysts.

This earnings season, technology companies have not contributed much thanks to the sharp slowdown. In constant currency, the sector reported 1% revenue growth. The impact was also visible in earnings growth. The top earnings downgrade in the sector is Wipro. The September quarter is a strong quarter for IT companies.

Earnings were mixed for the banking sector during 2QFY24. The earnings trajectory was mainly driven by continuous improvement in asset quality. Net interest margins of most leading banks contracted further during the quarter due to higher funding costs.

The maximum earnings upgrades have happened in the auto sector as large OEMs have managed to improve margins and cut back on costs. As a result, overall profitability has gotten a boost because of these two levers.