ETIG’s estimates showed aggregate net profit of Nifty 50 companies may climb 37.8% year-on-year in the three months to September, the highest since the second quarter of 2021 when profit growth, on a base of unprecedented contraction triggered by Covid-era mobility curbs, was 48.7%.
Revenue growth will likely be relatively modest at 10.2% as demand in certain pockets, including rural regions, is yet to show a meaningful recovery.
Will Provide Direction to Dalal Street
However, it would be better than the 6.9% expansion seen in the preceding quarter.
The corporate performance in the quarter will provide direction to stock markets struggling amid a pullout by foreign portfolio investors (FPIs) that net sold Rs 14,767 crore in September. The BSE Sensex is down 3.2% from its mid-September peak. Markets will also be looking at the Reserve Bank of India’s policy review on Friday.
The results season will kick off next week with IT companies first off the block. In the year-ago September quarter, revenue growth of the companies under review was 28.6%, while net profit had declined 2.4%.
“Q2FY24 could be a soft quarter with more sectors reporting lukewarm scorecards. The earnings of some sectors may show decent year-on-year growth, but fireworks are unlikely,” said Deepak Jasani, retail research head, HDFC Securities.
The latest data on advance tax collections points to an upward trend in corporate profits. Until mid-September, advance tax collections climbed 20.7% year-on-year to ₹ 3.55 lakh crore.
Operating profit margins of the Nifty sample are expected to expand 410 basis points year-on-year to 21.1% amid easing pressure on input costs.
One basis point is 0.01 percentage point. The sample’s raw material costs, relative to revenue, are likely to drop to 26.4% from 29.1% in the year-ago period. Sectorally, growth will be led by automobiles and BFSI whereas metal companies are likely to report sluggish performance. IT and FMCG companies are expected to report single-digit revenue growth. In the immediate future, macroeconomic trends will play a bigger role in determining corporate performance.
Automobiles
Early festive purchases augur well for the auto sector, especially in the passenger car segment. The earnings are expected to expand in double digits, helped by superior average selling prices and margin expansion supported by lower raw material prices. A rising share of premium car models is helping average selling prices to move up, driving revenue growth for the companies.
Banking and Finance
A sustained credit offtake and improving asset quality should help the sector report strong revenue and profit growth. Net interest margins may show pressure as deposit rates inch up faster than the loan rates. However, pre-provision operating profit growth is likely to remain in double digits.
Cement
Cement companies were able to increase prices twice in an interval of two weeks between the end of August and mid-September. This is an unusual development given muted demand. Higher prices are expected to boost revenue by 22-25% year-on-year for large cement companies. Depending on cost efficiency, net profit may climb in double digits.
FMCG
FMCG companies are expected to post single-digit revenue growth as consumer demand was impacted due to inflation. Also, the erratic pattern of monsoons doesn’t augur well for rural demand. Pressure on margins may ease varyingly for different companies based on their product basket and ad spend due to softened input costs.
Infotech
The second quarter of FY24 is expected to be challenging for the IT companies given the demand woes in the larger markets of the US and Europe. Top companies are expected to report either a drop or modest increase in revenue sequentially. Some companies may show margin expansion depending upon the timing and extent of salary revisions and moderating employee attrition.
Metals
A sluggish trend is likely to continue for the metal sector amid year-on-year moderation in commodity prices. Prices of aluminium and copper stayed flat while those of zinc were around 25% lower on-year. Listed metal companies are expected to report lower revenue and profits for the September quarter.
Oil and gas
Surging crude oil prices may weigh on earnings growth of oil marketing companies while benefiting explorers. Marketing margin on diesel turned negative in the September quarter as oil prices rose while retail fuel prices did not.
This is likely to affect oil marketing companies. Standalone export-focused refining companies may report lower earnings given the windfall tax outgo.
Pharmaceuticals
A surge in prescriptions of acute medicines due to seasonal maladies is expected to drive domestic growth for pharma companies. Revenue from the US market will be influenced by new product launches and pricing pressures. A weak rupee against the dollar is expected to boost exports.
