Indian companies deliver on Street hopes in first qtr

The aggregate net profit and revenue of these companies grew 32% and 7.88% from a year earlier, with profit growing at the fastest pace in eight quarters. Earnings are panning out mostly on expected lines with excellent performance from banks and weak guidance from the information technology (IT) sector, said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.

“Banks have reported very good results, with the best-in-class performance by ICICI Bank," said Vijayakumar. The trend of declining non-performing assets (NPAs), decreasing provisions, and rising profit continues, he said.

According to analysts at Jefferies India Pvt. Ltd, profits and loans at leading lenders grew over 30% and 15%, respectively, during the quarter, with stable asset quality. However, net interest margins (NIMs) have started to flatten, they noted.

Even after excluding banks and financials, net profits for the remaining 365 companies grew a robust 25%, supported by declining raw material costs. Raw material costs fell 9.43% year-on-year (y-o-y), supporting operating profit growth. The profits before interest, depreciation, and tax (PBIDT) rose 19% y-o-y.

Pramod Amthe, the head of institutional equity research at InCred Capital, said the market had estimated 25% net profit growth on last year’s low base. Just a tenth of 4,500 listed companies have declared earnings so far, and the numbers have been above expectations.

The impact of easing commodity cost pressures has been visible for one or two quarters now, but gains are still building as supply chains ease, said analysts at Jefferies. Earnings growth has been healthy even if only Nifty50 companies were considered.

“So far, Q1FY24 results have been in line with expectations. Nifty50 (ex-financial and commodity) has reported revenue growth of 11% and profit growth of 12%," said Manish Jain, a fund manager at Ambit Asset Management.

The operating earnings miss was largely seen in IT services, cement, and staples, Jain said. However, upgrades were seen in banks and commodities.

Fast-moving consumer goods (FMCG) companies’ earnings indicate pressure on volume growth, while auto results are broadly good with improving performance by Tata Motors and Bajaj Auto, Vijayakumar said.

“Although some analysts may be wary of FMCG volume growth, declining input costs have remained supportive of the earnings growth for these companies," said Siddarth Bhamre, research head, Religare Broking Ltd.

Rural demand is likely to improve with monsoon catching pace, said analysts. This is likely to be supportive for demand growth in FMCG, two-wheelers and tractors, pointed out Bhamre.

Ambit’s Jain said the rural FMCG market is recovering sequentially, and the cement industry is likely to post a third consecutive year of double-digit volume growth. IT firms are seeing weakness in discretionary spending across banking, financial services, and insurance (BFSI), technology, and communication verticals; however, for banks, loan growth remains healthy.

Bhamre said IT results were not very impressive, though they were on expected lines. According to Bhamre, the guidance cuts have disappointed the market, and IT stocks are now trading at good valuations.

Among heavyweights, Reliance Industries Ltd’s earnings were a mixed bag, with the weak oil-to-chemicals segment performance.

However, headline numbers look healthy, and earnings upgrades for FY24 have been coming through in recent fortnights, pointed out Amthe, adding earnings visibility remains supportive for markets.