Corporate Earnings Season Starts on Weak Note

Corporate earnings season started on a weak note -- Nifty-50 (ex-financial & commodity) operating earnings grew by 11 per cent YoY, 3 per cent behind our expectations, Antique Stock Broking said in a research.

The miss in terms of operating earnings was largely driven by IT services, cement, and FMCG. Overall, the domestic demand momentum continues in banks, cement, and real estate; while FMCG was a laggard.

Broadly, we continue to believe that the market appears to be capped in the near term given elevated valuation amidst slower growth in advanced economies in the near term, the report said.

Indian equities remains near life-time high levels, supported by strong FPI equity flows, highest CYTD among select EMs and the highest for the fifth month in a row, the report said.

The report said 32 stocks under coverage have announced results so far (54 per cent weight in the Nifty 50), Nifty-50 (excluding financial, commodity) announced so far reported revenue/ EBITDA/ PAT growth of 11 per cent/ 11 per cent/ 12 per cent YoY in 1QFY24 and is behind expectation by 0 per cent/ 3 per cent/ 4 per cent, respectively.

Operating earnings miss was largely seen in IT services (HCL Tech, Wipro), cement (Ultratech, Dalmia Bharat), and FMCG (HUL). However, upgrades was seen in Banks (Kotak Mahindra and ICICI Bank) and commodities (JSW Steel and RIL); and Nifty-200 FY24 earnings outlook (so far) remains unchanged -- IT & Energy and Metals saw downgrade while Financials saw upgrades, the report said.

IT firms are seeing weakness in discretionary spend across BFSI, technology, and communication verticals as enterprises are focusing more on projects with better ROI and cost optimization. However, are confident about the long-term demand given the emergence of newer technologies.

Loan growth continues to be healthy, while NIM has seen moderation due to an increase in the cost of deposits. Credit costs continue to remain benign with no negative surprise on the asset quality front, the report said.

The rural FMCG market is recovering sequentially, but it is still at a level it was two years back. Cement industry is likely to post a third consecutive year of double-digit growth, leading to strong pricing under-current. Expect a 20 per cent–30 per cent drop in fuel costs till 4Q at current spot prices; and lower cost of production for metal companies to partially offset lower realization, spreads to improve from 2QFY24 onwards, the report said.