Five Nifty constituents, including two Tata group companies namely Tata Steel Ltd and Tata Motors Ltd, contributed 56 per cent of the incremental growth in Q3 earnings, Motilal Oswal Securities suggested in a note. The other three included two private lenders HDFC Bank Ltd and ICICI Bank Ltd and steelmaker JSW Steel Ltd.
Net-net, corporate earnings were strong in Q3, with widespread outperformance across aggregates driven by continued margin tailwinds. Domestic cyclicals such as autos and financials, along with global cyclicals such as metals and oil & gas companies drove the beat. Technology posted a marginal decline in earnings, its first in 26 quarters!
"India is currently enjoying the confluence of the best macro and micro tailwinds with ~7% GDP growth, moderating inflation prints, range-bound crude prices, easing 10-year G-sec yield, stable currency, and resilient corporate earnings. The 3QFY24 corporate earnings have exceeded our expectations, with the BFSI and automobile sectors driving the overall performance. The Metals and O&G sectors reported healthy earnings growth, providing further support to the overall earnings," Motilal Oswal Securities said.
In the case of Nifty, the index delivered a strong beat with a 17 per cen YoY PAT growth against an estimate of 11 per cent. Ex-OMCs, Nifty’s earnings grew 17 per cent YoY against an estimate of 10 per cent. Ex-Metals & oil & gas, Nifty’s earnings were up 15 per cent YoY against an estimate of 10 per cent.
Motilal Oswal Securities said the earnings revision trend in the broader coverage universe, excluding Nifty, was lackluster. The margin tailwind from 4QFY24 onwards will be receding and facing a high base, necessitating a recovery in revenue growth to drive earnings ahead, it said.
"Nifty is trading at a 12-month forward P/E ratio of 19.4x, which is in-line with its long-period average (LPA) even as broader markets trade at expensive valuations (NSE Midcap 100 index trading at 40 per cent premium to Nifty). We prefer PSU Banks, Industrials (Capital Goods and Cement), Real Estate, Consumer Discretionary, and NBFCs, while we are UW on IT and Metals. We recently upgraded Energy to Neutral and downgraded Autos and Pharma to Neutral in our model portfolio," it said.
The domestic broking firm said the markt will take cues from the outcome of the Lok Sabha elections scheduled in Apr-May and the timing and quantum of easing in the interest rate cycle, both globally and in India.
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