Corporate profits show signs of pressure in Q1; banks shine

Mumbai: Profitability of large Indian companies that have announced their first quarter results so far is showing signs of being under pressure. Analysts’ earnings per share (EPS) estimates of Nifty for FY23 have been trimmed by 1.85% to ₹858, mainly due to lower-than-expected results from some of the big companies like and . Excluding the banking, financial services, and insurance (BFSI) sector, profits of Nifty companies, which have declared results so far, have declined 1% year-on-year (YoY).

“The earnings growth in June 2022 quarter has been subdued and led solely by BFSI, which has driven 124% of incremental YoY earnings growth so far, aided by credit cost moderation,” said Gautam Duggad, head of research,

. “Oil & gas and automobiles have been the laggards while metals and cement sectors posted weak numbers expectedly.”

Tata Motors saw an EPS estimate cut of 25% last month, while ‘s EPS estimate was slashed by 16%. Wipro, , , and , among others, have seen EPS estimates drop by 5-7% in the last four weeks, according to Bloomberg consensus estimates.

Profits of the 31 Nifty companies including banks and financials that have declared results so far rose 12% year-on-year, driven mainly by the banking and financial sector. In the past few quarters, profit growth has been in the range of 12-20%. However, in the ongoing season, the number of downside surprises in earnings have outnumbered upside surprises.

“The index level earnings cuts so far have only been marginal and owned mainly by a couple of heavy-weight companies,” said Sujan Hajra, executive director, Anand Rathi. “While traction in corporate sales growth continues, the margin compression due to higher raw material, fuel, and wage costs resulted in some disappointments on the bottom line.”

With softening of global commodity prices, signs of recovery in corporate capex cycle, relatively resilient domestic demand, and companies’ focus on profitability, analysts expect earnings to improve in FY23 and FY24.

“From a longer-term perspective, however, we remain confident of 14-18% annualised earnings growth for Nifty 50 companies,” said Hajra

Among the Nifty stocks,

, Axis Bank, , , , , , Cipla, , and Tata Steel exceeded analysts’ profit estimates; while , Tata Motors, HDFC, Shree Cement, Nestle, Dr Reddy’s Labs, JSW Steel, Reliance Industries, Infosys, TCS, Tech Mahindra and Wipro missed profit estimates.