Forecast of December 2023 Quarterly Results for Top Indian Companies and Sectoral Outlooks for Investors
Source and Citation: Original reporting from The Economic Times
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Analysis for Layman
The Nifty 50, a leading Indian stock market benchmark index comprising the 50 largest Indian companies, is expected to report a 15% increase in overall net profits for the December 2023 quarter compared to the same quarter last year. This forecast is based on estimates collected by ETIG.
While this growth is lower than the over 25% earnings growth seen in the previous two quarters, a 15% year-on-year rise is still considered strong, given factors like muted rural demand and global challenges. The aggregate revenues for Nifty 50 companies are predicted to grow by 8.5% annually.
Key drivers of this growth include the automobile sector, with higher sales volumes, banks experiencing robust credit growth, pharmaceutical companies benefiting from a rebound in the US market, and cement firms implementing price hikes. However, consumer goods and IT companies may face challenges due to weak consumer sentiment and spending cuts.
The earnings per share of Nifty 50 companies, an essential profitability indicator, is expected to rise by 21% in 2023-24 and 17% in 2024-25, demonstrating strong corporate fundamentals. However, volatility may occur as investors closely analyze election outcomes.
Impact on Retail Investors
For retail equity investors in India, the forecast of double-digit profit growth among the top Nifty 50 companies for the third consecutive quarter is a positive sign. Despite economic pressures, India Inc. is displaying resilience in earnings, indicating that retail investors can confidently remain invested in quality stocks.
However, not all sectors will perform equally well this quarter. Retail investors should closely follow updates from the automobile, banking, and pharmaceutical sectors while maintaining realistic expectations for consumer goods and technology companies. Cement and energy stocks also warrant attention.
Overall, the messages are positive for long-term retail investors: a) India’s growth outlook remains among the best globally, b) As interest rates peak, equity valuations become attractive, c) Healthy macroeconomic indicators support stocks over the medium term.
However, short-term sentiment may remain cautious due to the pre-election environment and external risks. Retail investors should allocate their resources reasonably and avoid impulsive decisions. Regularly reviewing mutual fund holdings can also help identify emerging trends.
Impact on Industries
The automobile industry is significantly positively impacted by the strong December quarter results forecast, with higher passenger vehicle and two-wheeler sales. Companies like Maruti Suzuki, Bajaj Auto, and M&M are expected to benefit, and this also has positive ripple effects for auto component manufacturers.
Banking and financial services players are well-positioned to capitalize on sustained credit growth momentum. However, rising deposit rates may temporarily squeeze margins, posing a challenge for top lenders like HDFC Bank, ICICI, and Kotak Mahindra Bank.
Cement manufacturers such as UltraTech and ACC could benefit from price hikes and lower input costs this quarter. But rural construction demand remains a drag. IT services majors like TCS, Infosys, and HCL Tech might deliver muted results as clients curtail spending amidst recession fears.
Pharma exports should get a lift as the US market recovers and Indian firms launch new specialized products. Sun Pharma and Dr. Reddy’s are expected to post robust numbers.
Consumer goods companies, on the other hand, may face challenges due to weak festive season sales, particularly in rural India. Stocks like ITC, Dabur, and Britannia may struggle without volume growth.
Long-Term Benefits & Negatives
The consistent double-digit earnings growth for top Indian corporates holds several long-term benefits. Firstly, it indicates the fundamental strength of the economy, with contributions from diverse sectors. Multiple areas, from automobiles to IT to banks, are flourishing, unlike cyclical surges of the past.
Secondly, rising profits and domestic consumption allow India Inc. to pursue ambitious growth plans even amid global uncertainties. Companies have the assurance needed to invest in capacities, new ventures, exports, and more, expediting the virtuous cycle.
Thirdly, it creates a stable environment for global capital flows seeking returns relatively immune to volatility in developed markets.
However, these projections are based on current dynamics, and a prolonged global recession in 2024 or sharp rises in crude oil prices could negatively impact earnings. Domestically, flare-ups in geopolitical tensions or communal issues ahead of elections pose long-term downside risks, potentially distracting focus from economic development.
Short-Term Benefits & Negatives
An immediate positive from strong corporate results is bolstered sentiment across Indian industries. Entrepreneurs feel assured regarding domestic consumption trends and access to bank credit, incentivizing fresh investments and hiring in the near term.
Additionally, solid earnings provide flexibility to major conglomerates like Reliance, Tata, and Adani groups to aggressively pursue growth plans domestically and overseas. Rising profits enable them to allocate funds for mergers and acquisitions globally.
However, smaller firms still struggling with input cost pressures may lag, as profits primarily accrue to big corporates in the short term. This skew could widen further amid an uneven global economic landscape favoring giants.
There are also risks of overheating for sectors like banking, where retail credit growth has stayed extremely high in recent quarters. As the RBI raises rates with a lag affecting credit appetite, provisions for bad loans may increase later in 2024.
So while larger industries are buoyant, smaller players and new entrepreneurs still face short-term headwinds such as raising funds or managing working capital gaps. Targeted policy relief is vital for an inclusive rebound.
Companies Impacted by Nifty’s Dec Quarter Profit Expectations
Indian Companies Likely to Gain:
- Maruti Suzuki, Bajaj Auto, Hero MotoCorp
- Strong volume growth in passenger and two-wheeler segments.
- Favourable commodity prices supporting margins.
- Positive sentiment due to market leader Maruti’s positive performance.
Banks and Finance Companies:
- HDFC Bank, ICICI Bank, Axis Bank
- Sustained credit growth augurs well for loan books.
- Higher operating leverage might offset pressure on net interest margins.
- Strong execution and market leadership could drive sentiment.
Capital Goods Companies:
- L&T, Larsen & Toubro, ABB India
- Strong execution expected to drive earnings growth.
- Revenue growth in the 11-15% range.
- Order inflow moderation towards quarter-end might create some uncertainty.
- UltraTech Cement, ACC, Ambuja Cements
- Increased cement prices and cheaper fuel offer cost advantage.
- 5-6% cement demand growth expected.
- Market leader UltraTech’s performance will be a key indicator.
- Cipla, Dr. Reddy’s Laboratories, Sun Pharma
- Strong double-digit revenue growth likely.
- Revival in US market, domestic demand, and weak rupee to benefit exports.
- New product launches and focus on complex generics could boost sentiment.
Indian Companies Potentially Losing:
Fast-Moving Consumer Goods (FMCG) Companies:
- Hindustan Unilever, ITC, Nestle India
- Low single-digit revenue growth expected due to subdued consumer demand.
- Festive season and winter failed to revive rural sentiment.
- May maintain margins due to lower expenses, but overall sentiment might be weak.
Information Technology (IT) Companies:
- Infosys, Wipro, Tata Consultancy Services
- Weak demand in key markets (US and Europe) could impact performance.
- Dollar revenue might fall or stay flat.
- Lower utilisations and furloughs could pressure margins.
- Negative sentiment due to broader slowdown in global IT sector.
- Tata Steel, JSW Steel, Vedanta Ltd.
- Muted demand, state elections, and sluggish finished product prices might impact them.
- Low-base effect could offer some support.
- Higher raw material costs might affect profitability.
- Overall sentiment might be cautious due to industry headwinds.
Global Companies Impacted:
While the article primarily focuses on Indian companies, global players in certain sectors could also be affected:
Global Automobile Companies:
- General Motors, Volkswagen, Toyota
- Positive Indian auto market sentiment could indirectly benefit their Indian subsidiaries.
Global Pharmaceutical Companies:
- Pfizer, Abbott Laboratories, Merck & Co.
- Revival in the US market could benefit their overall performance.
Global IT Companies:
- Accenture, Cognizant, IBM
- Slowdown in the Indian IT sector could dampen their overall sentiment and growth expectations.
Please note: This analysis is based on the provided information and is subject to change based on future developments. It’s crucial to conduct thorough research and consider market dynamics before making any investment decisions.