Motilal Oswal: 65% of Nifty companies that revealed earnings have met or exceeded Q1 profit expectations

Of the 33 Nifty firms that have reported their earnings for the June quarter, 12 companies have exceeded profit expectations, 12 have met expectations, and nine companies have fallen short, brokerage firm Motilal Oswal Securities said in a report.

The aggregate net profits of the 33 Nifty companies that have declared their results rose 43 percent year-on-year (YoY) against the estimated 41 percent YoY growth. This growth was mainly driven by notable contributions from Tata Motors, BPCL, HDFC Bank, ICICI Bank, and Axis Bank, accounting for 93 percent of the incremental YoY accretion in earnings. On the other hand, Tata Steel, Reliance Industries, and UPL have negatively impacted Nifty earnings, the report said.

Out of the 120 companies in the MOFSL universe, the aggregate net profit of the ones that reported earnings has increased by 47 percent YoY, slightly below the estimated growth of 51 percent YoY. The growth in earnings was primarily propelled by domestic cyclicals, with notable contributions from the BFSI and Auto sectors.

Within the BFSI sector, aggregate earnings grew 42 percent. Meanwhile, the auto sector saw a remarkable turnaround, with Tata Motors playing a key role. The sector registered a profit of Rs10200 crore (compared to a loss of Rs2900 crore in 1QFY23) due to the positive performance of Tata Motors. Excluding Tata Motors’ impact, the auto Universe has posted a healthy 82 percent earnings growth in 1QFY24 so far.

“The 1QFY24 corporate earnings so far have been in line, with performance of heavyweights, such as Tata Motors, BPCL, HDFC Bank, ICICI Bank and Axis Bank, driving the aggregate. The spread of earnings has been decent with 65 percent of our Universe either meeting or exceeding profit expectations. However, growth has been led only by BFSI, Auto while the O & G sector reported a 2.6x surge in profit YoY underpinned by the improvement in marketing margins of OMCs,” Motilal said in its latest report.

The Nifty is currently trading at a 12-month forward price-to-earnings (P/E) ratio of 19.1x, a 5 percent discount compared to its own long-period average (LPA). Motilal Oswal has retained its sectoral allocations and weights. It is Overweight (OW) on the financials, consumption, and automobiles sectors due to positive growth prospects. These sectors are seen as potential winners in the current market scenario. On the other hand, the firm is Underweight (UW) on metals, energy, and utilities, based on weak earnings outlook. It is Neutral on healthcare and telecom sectors, as it sees moderate growth in these sectors compared to others.