India Inc: Key Takeaways from Q3FY24 Earnings Season

As we wrap up the Q3FY24 earnings season, a comprehensive analysis reveals that Nifty’s performance was broadly in line with market expectations. While there were no significant surprises, topline growth continues to exhibit a subdued trend across sectors. Notably, heavyweight constituents of the Nifty, such as financials, IT, and FMCG, have displayed sluggish earnings growth thereby slowing down Nifty’s bottom-line growth. In this article let us dive into the details and see what insights we can uncover from this earnings season.

The average growth in revenues and net profit over the past five quarters has been 14% and 12% respectively. The revenue and net profit growth for the latest quarter Q3FY24 is 9% and 15% respectively. This indicates a moderate slowdown in revenue expansion although offset by strong profitability performance.

During Q3FY24, the banks were at the forefront in terms of revenue generation, while automobiles stand out among the top performers both in revenue and earnings. The infrastructure and capital goods sector displayed commendable performance largely attributed to the government’s consistent emphasis on capital expenditure initiatives.

When it comes to banks, their business momentum remained healthy on the advances side in Q3FY24 with leading banks reporting strong sequential growth. However, the pain in deposits remained a worry and it continued to lag behind the loan growth. Banks continued their dependency on term deposits to boost their deposits and thus saw deterioration in their CASA ratio. The impact of the higher cost of funds resulted in either a decline or flat Net Interest margins for leading banks. The Asset quality environment which was pristine for a while now saw traces of pain with the Slippage ratio of several leading banks seeing a rise. It would not be unusual to say that the best of the banking environment is behind us and therefore a close look at the developments of individual banks would be a key factor for wealth creation in this space.

The automotive sector continued to showcase its remarkable performance even in this quarter. This can be seen from an impressive growth in profit after tax at 85% with total income surging by 16% YoY. This substantial increase in profitability can be attributed to several factors, including the decline in commodity prices, alleviation of supply-chain challenges, and stability in currency rates. The growth was led by a strong demand for premium cars, predominately from urban areas.

The IT sector came out swinging with decent numbers beating the low expectations. These subdued expectations were primarily influenced by macroeconomic conditions, reduced discretionary spending, and seasonality. Additionally, the sector witnessed robust margin performance, steady deal wins, while the attrition rates hit multi-year low during the quarter.

The pharma companies posted stellar results due to growth in domestic and export sales; international markets - majorly US. The revenues grew due to reduction in pricing pressure while reduced raw material costs, and low crude oil prices have helped in improving the margins at consolidated levels.

Coming to the FMCG sector, it experienced lower revenue and net profit growth, primarily attributed to sluggish rural demand and heightened competitive intensity characterized by muted volume growth.

While the realty sector weighed down the earnings performance, energy and PSE sectors displayed steady YoY earnings growth. On an overall basis, post Q3FY24 earnings season, the companies remain optimistic about the future growth outlook.

Technical Outlook

Nifty closed the week on a positive note, notching a significant 0.78% gain, marking a fresh high of 22,298, and ended the session 22,213.

Technically, Nifty continued to rise following higher highs and higher lows in the daily time frame and maintained its position above the 20 and 50 Simple Moving Averages (SMA) with the Relative Strength Index (RSI) standing strong at the 62 level.

The support is placed at 22,000 followed by 21,900 level while resistance remains at 22,500.

A moderate swing in the Index is anticipated as long as the India VIX, the fear gauge, remains below 16 levels.

Confident and Calculated: Interim Budget 2024-25 Strikes a Smart Balance!

With the upcoming general elections looming, the recently revealed Interim Budget for the fiscal year 2024-25 has diverged from the typical pre-election pattern. Instead of succumbing to populist measures, the budget showcases a professional and forward-looking approach, indicating the government's confidence in the upcoming elections and the overall economic landscape.

A standout feature is the government's adept handling of fiscal consolidation alongside capital expenditure. The unexpected Fiscal Deficit target for FY25, set at 5.1% of the GDP, pleasantly surprised the market, which had anticipated a higher figure. Keeping such an aggressive target has a number of implications for the market, fortunately the implications are positive.

A lower fiscal deficit implies reduced government borrowing, leading to a diminished demand for bonds. This, in turn, is expected to lower bond yields and elevate bond prices. The direct beneficiaries of this fiscal stance are corporate borrowers, as it reduces their overall interest costs.

A lower borrowing costs would also materially benefit the NBFCs who source their capital from banks. Higher bond prices would mean that the bond portfolios would witness significant MTM rise and therefore institutions holding bond portfolios would be benefitted like the banks and life insurance companies.

Apart from the fiscal consolidation, the other part which the market was keenly interested in was capital expenditure. Finance Minister Nirmala Sitharaman announced an 11.1% increase in the Centre's capital expenditure for FY25, reaching Rs 11.1 trillion. While this growth rate might seem slower compared to the post-pandemic surge, the crucial point lies in the capital expenditure's share, set to touch 23.3% of total expenditure – the highest since the 1994-95 Budget. This underscores the government's commitment to public investment-led growth, providing a significant boost to the country's infrastructure development.

The Interim Budget's continuation of the Pradhan Mantri Awaas Yojana (PMAY) is also noteworthy. The commitment to constructing two crore more houses under PMAY-G, along with a special scheme for urban middle-class families, not only addresses long-standing housing needs but injects vitality into the housing loan segment, propelling growth in the real estate sector. This, in turn, creates a ripple effect, benefiting ancillary industries such as cement, steel, paints, and more.

In a broader context, the macro-policy approach reflected in this budget is commendable. The counter-cyclical nature of the policy, initially geared towards injecting growth during the challenging times of the Covid pandemic, now pivots towards a prudent fiscal management strategy. As the economy recovers at a commendable pace, the government's ability to navigate the fine line between fiscal discipline and sustaining growth becomes crucial for the long-term sustainability of India's economic trajectory.

In essence, the Interim Budget for 2024-25 stands as a testament to the government's skillful balance between fiscal restraint and growth continuation, setting the stage for a robust and sustainable economic future.

Technical Outlook

Nifty saw heightened volatility last week due to the Interim Union Budget and Federal Reserve meeting. Closing at 21,853.80 with a weekly gain of 2.35% the index hit a new peak at 22,126.80 but faced a pullback forming a shooting star candle on Friday.

Nifty is currently holding above the 20 and 50 Simple Moving Averages (SMA) with the Relative Strength Index (RSI) standing at the 58 level. Technically, immediate support is identified at the 21,500 level while the next significant support remains at 21,200. On the upside, resistance is placed at 22,222 followed by 22,350 levels.

The US and European markets are currently stable and inching higher gradually contributing to a positive sentiment in the broader market.

As long as the India VIX remains below 16 levels, a moderate swing is expected in the index.

As small and mid-cap stocks enter oversold territory, urging investors to remain vigilant and consider a diversified strategy in the upcoming trading sessions. In Bull Run, the correction typically takes place very sharply.