Nifty50 Firms are Witnessing Earnings Downgrade for FY23. Here's What's Going On

India Inc. has posted double-digit growth in net profit for the quarter ended June 2022 (Q1FY23), as the numbers in the corresponding period last year were marred by the second wave of the pandemic, creating a low base effect. According to data from corporate database ACE Equity, net profit of the country’s top 50 companies, which are a part of the benchmark NSE Nifty index, surged 15 per cent year-on-year (YoY). The sales figures look even better—they grew 34 per cent in this period.

On a sequential basis, profit took a hit due to higher raw material prices. Nifty companies reported a fall of 12.71 per cent in net profit on a quarter-on-quarter (QoQ) basis. The number dips to 13.3 per cent if we exclude BFSI; the sector has outperformed as asset quality continued to improve, led by healthy recoveries and steady slippages. Cumulative net sales of Nifty companies, however, increased by 2.44 per cent on a QoQ basis.

“On the bottom-line front, sequential growth at the index level was primarily driven by the pharma space and supported by the FMCG (fast-moving consumer goods) domain. The performance was muted in the auto space, given the muted performance at Tata Motors (primarily JLR operations),” says Pankaj Pandey, Head of Research at ICICI Securities. In Q1FY23, the net loss of Tata Motors widened to Rs 5,007 crore from Rs 1,033 crore in the previous quarter. The company reported a loss of Rs 4,451 crore a year ago.

In Q1FY23, top line growth on a YoY and QoQ basis was led by oil and gas, primarily due to the outperformance by upstream companies amid robust crude-led commodity prices. Close behind was the FMCG sector, riding on ITC’s splendid show (38 per cent YoY growth in top line).

On the other hand, sequential top line growth witnessed the maximum fall in the capital goods space (down 32.2 per cent), given the seasonality factor, with the January-March quarter being high on the execution front.

Earnings prospects have dimmed as “overall Q1 earnings came below estimates”, says Mitul Shah, Head of Research at Reliance Securities. “More downgrades were seen in Nifty companies compared to upgrades. We reduced earnings estimates of 59 per cent of the companies within our universe for FY23.”

However, cooling inflation—retail inflation eased to 6.71 per cent in July—might help going forward, say experts. India Inc. may get further relief from declining oil prices. Since the beginning of the quarter, oil has dropped more than 8 per cent to $98.30 per barrel on August 15, 2022. “From here on, as inflation is easing, we can see commodity prices coming down, which should have positive results, as demand which was put on hold will now be back,” says Vikram Kasat, Head of Advisory at Prabhudas Lilladher.

@iamrahuloberoi