Q4 FY23 Results Preview - Healthy But Lopsided; BFSI, Autos To Take The Lead: Motilal Oswal

Motilal Oswal Report

As we usher in FY24, there are three important variables that will dominate investor conversations on corporate earnings in our view.

First, after a spectacular run for five years where the earnings surged ~five times to Rs 2.1 trillion in FY23 from Rs 450 billion in FY18, the growth in banking, financial services and insurance earnings will now normalise as the bulk of the benefits of lower credit costs from asset quality clean-up and recovery is behind. This coupled with higher deposit costs and consequent cap on net interest margins will result in earnings normalisation.

Second, the domestic consumption slowdown has become well-entrenched in both staples as well as discretionary sectors with a very few exceptions. Thus, the onset and progress of monsoon assume importance given the subdued rural consumption backdrop.

Third, the weak global growth and higher interest rates coupled with flux in the U.S. and European banking sectors have earnings implications for globally-linked sectors such as commodities and technology, which together comprised ~40% of Nifty profit pool in FY23.

We expect our universe earnings to rise 15% YoY while Nifty earnings are likely to grow 14% YoY in Q4 FY23. Earnings growth would be fueled by BFSI and auto sectors, which are likely to rise 37% and 70% YoY and contribute ~70% and ~20% of incremental YoY earnings for our universe in Q4 FY23, respectively. IT, consumer and oil and gas sectors are expected to post 11%, 10% and 16% YoY growth, respectively, during the quarter.

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