Q3 Result: India Inc. may deliver moderate profit, negative surprises unlikely; here’s what experts say

The December quarter earnings of Indian corporates are unlikely to throw a negative surprise even as there could be some sequential moderation in some sectors due to high base and sectoral headwinds.

According to Nuvama Wealth Management, Nifty earnings may grow 10 per cent year-on-year (YoY) in Q3FY24. The brokerage firm pointed out that the gap between the top line and profits is now narrowing and given the high base, earnings are likely to moderate further in Q4FY24.

"The strong first half of the financial year 2024 (H1FY24) has ensured limited downside risks to FY24 earnings," Nuvama said.

"After a strong H1FY24 (nearly 18 per cent PAT growth), we forecast our coverage universe (ex-OMCs) profits to moderate to 10 per cent," Nuvama said.

The brokerage firm believes the top line may remain muted in commodities, exporters, and consumption, but also soften (still above 10 per cent) in BFSI, industrials and autos.

On a YoY basis, Nuvama expects PAT to be strong (more than 20 per cent) in industrials, autos and cement but weak (less than 10 per cent) in BFSI, FMCG, IT, chemicals, consumer services, etc.

"Overall, demand remains weak (consensus is forecasting an uptick in H2FY24) while margin tailwinds are fading. If sustained, it poses risks to FY25/26 consensus earnings estimates," Nuvama said.

Also Read: Q3 result preview: IT firms expected to post muted revenue, subdued profit amid weak demand

Kotak Institutional Equities expects the Q3FY24 net income of its universe to increase 22 per cent YoY overall, but 20 per cent YoY excluding oil marketing companies (OMCs).

It expects OMCs to report a sharp rise in net profits YoY due to large marketing losses in Q3FY23. Other than OMCs, Kotak expects a strong YoY increase in the net income of (1) automobiles (higher volumes, richer product mix and led by Tata Motors), (2) banks, (3) capital goods (strong execution and margin improvement), (4) construction materials (higher profitability, led by increase in realisation and lagged benefit of lower fuel costs), and (5) metals and mining (realisation-driven increase in YoY profitability) sectors.

Also Read: Q3 result preview: Banking sector's earnings could moderate; NIM compression to ease from Q2 levels, says Motilal Oswal

Meanwhile, Kotak expects electric utilities to report weak earnings while fertilisers and agrochemicals may report losses. IT services may report weak earnings, according to Kotak.

Kotak expects Q3FY24 net profits of the BSE-30 index to increase 12 per cent YoY, but decline 2 per cent QoQ. Net profit for the Nifty 50 index may increase 12 per cent YoY but decline 4 per cent QoQ.

Also Read: Q3 result preview: Construction sector expected to see revenue growth of 10% YoY; margins to remain stable

Kotak expects the earnings per share (EPS) of the BSE-30 index at ₹3,112 for FY24 and ₹3,567 for FY25. For the Nifty 50idex, the brokerage firm expects an EPS of ₹974 for FY24 and ₹1,086 for FY25.

Also Read: Q3 result preview: FMCG sector expected to see mid single-digit volume growth, margin expansion trend to continue

Abhishek Jain, Head of Research at Arihant Capital expects Q3 results to present a mixed map with a slightly weaker overall performance.

He expects the IT sector to have muted earnings growth and this concern was even reflected on the Dalal Street, where stocks of IT companies witnessed correction. However, select midcap IT may surprise with strong earnings growth.

FMCG companies may post a set of flat numbers again because of some slowdown in the rural economy. However, an uptick is expected as things have improved from December onwards, Jain said.

For financials, Jain believes they could face margin pressure, showing weakness on a quarter-on-quarter basis, though strong top-line growth is projected. In the travel and leisure sector, discretionary spending is likely to appear, which will help companies in this sector post good quarterly numbers.

Also Read: Q3 result preview: NBFCs likely to see healthy profit growth of 27% YoY amid moderating margins

Gaurang Shah, Senior Vice President at Geojit Financial Services expects banking and financials to perform well in Q3 on a fallback of the numbers in terms of advances that some of the banks have already declared. Moreover, he expects better earnings in IT, cement, metals and FMCG.

"Private sector banks, public sector banks and strong NBFCs should do well," said Shah.

What should investors do?

The third quarter numbers are expected to be a mixed bag for the market and experts recommend focusing on the long-term drivers of the market.

Trivesh D, COO, Tradejini observed given the upcoming elections, corporate India will tread cautiously in allocating capex budgets for the upcoming year which will be visible in the Q3 earning potential as well.

Trivesh believes the upcoming Budget is also unlikely to be a major catalyst for the market, with investor attention focused on Q3 earnings season and the central bank's monetary policy decisions.

The focus should remain on the long-term drivers of the market, including the post-election landscape and the potential for sectors like IT and banking to rebound from current headwinds, said Trivesh.

"I feel Q3 is likely to be a period of mixed signals for the Indian market. While cautious optimism is certain, investors should be aware of the potential for short-term volatility," said Trivesh.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.