Q4 Results Review: Banking, auto shine, metals drag; Motilal Oswal lists top upgrades and downgrades

The January-March quarter (Q4) numbers of Indian companies met expectations with sectors like banking and automobile stealing the show and metals, oil & gas, cement, healthcare and retail displaying a lacklustre show.

Brokerage firm Motilal Oswal Financial Services (Motilal Oswal Financial Services) said India Inc.’s profitability remained healthy in Q4FY23 despite a challenging global macro environment.

"Nifty’s earnings growth stood at 16 per cent year-on-year (YoY) against the estimates of 14 per cent YoY while earnings of the MOFSL coverage universe jumped to a four-quarter high of 15 per cent YoY against the estimates of 14 per cent YoY in Q4FY23," said the brokerage firm.

"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 said.

The brokerage firm underscored that this aggregate performance was fueled by BFSI and auto segments that posted 43 per cent and 115 per cent YoY earnings growth respectively. Conversely, the weaker-than-expected performance of metals that clocked 45 per cent YoY earnings decline dragged overall growth, said the brokerage firm.

"Excluding metals and O&G, the MOFSL universe and Nifty clocked a solid 34 per cent and 30 per cent YoY earnings growth versus expectations of 29 per cent and 23 per cent growth, respectively. Along with metals, the cement, healthcare and retail sectors too dragged Q4FY23 earnings. Excluding BFSI, profits grew 4 per cent YoY against the estimates of 5 per cent for the MOFSL universe," said Motilal Oswal.

As per the brokerage firm, Nifty ended FY23 with 11 per cent earnings per share (EPS) growth on a high base of 34 per cent growth in FY22. Earnings though remain lopsided with BFSI driving almost entire incremental earnings in FY23.

Motilal Oswal is optimistic about the market in general and has a bullish view on financials, capex, automobile and consumption themes.

"With healthy macros, range-bound oil prices, robust fiscal balance sheet and moderating inflation, the backdrop for the market is quite optimistic. We maintain our overweight stance on financials, capex, autos and consumption. We are neutral on IT and healthcare while we have an underweight stance on metals, energy and utilities in our model portfolio," said Motilal Oswal.

According to the brokerage firm, Tata Motors (13 per cent), Bharti Airtel (8 per cent), Bajaj Auto (7.3 per cent), Divi’s Lab (7 per cent), and Hero Motorcop (5 per cent) are the top earnings upgrades in FY24E. On the flip side, ONGC (-16 per cent), UPL (-13 per cent), Grasim Industries (-11 per cent), Hindalco (-9 per cent), and Coal India (-8 per cent) are the top downgrades.

Read more: Can Nifty climb to a new all-time high after better-than-expected GDP of India?

Among the sectors, Motilal Oswal said IT companies reported a mixed performance overall in Q4FY23, with tier-1 firms delivering muted revenue growth and modest margins, while tier-2 companies outpaced the tier-1 pack with stronger revenue growth.

On the other hand, banks reported a strong Q4FY23, driven by healthy loan growth, stable margins, and continued asset quality improvements, Motilal Oswal pointed out. The brokerage firm observed numerous drivers of credit expansion, with the retail and MSME sectors exhibiting robust growth and the corporate book displaying a healthy rebound.

The automobile sector's volumes grew on a year-on-year basis across segments, except two-wheelers which remained flat due to a decline in exports, Motilal said.

The overall performance of the consumer companies of Motilal Oswal's coverage universe was a mixed bag with some companies reporting robust volume growth, while others recording strong value growth. However, there have been encouraging developments on the margin front, said the brokerage firm.

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Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.