Brokerages say Indian Inc’s Q2 performance largely appears better so far, as industry heavyweights reported strong numbers, led by financials and automobiles.

According to Motilal Oswal Financial Services, as of November 1, 98/32 companies within the MOFSL Universe/Nifty have announced their Q2 results. The Q2-FY23 corporate earnings, so far, have been in line with performance of heavyweights, such as RIL, HDFC Bank, TCS, ICICI Bank and Infosys, driving an in-line aggregate, it said.

ICICI Securities said earnings-beats/misses are evenly poised for NSE-200 with major beats from mid-caps cushioning more misses from the Nifty Next50 index. “In NSE-200, financial and autos are dominating with more beats, while cement and metals are dominating with more misses. Technology and FMCG earnings have been neutral,” it added.

‘Margin weakness’

Q2-FY23 earnings season is under way with better revenue growth than estimates, but margin weakness is seen in few sectors (Cement, Metal). Domestic-oriented sector (Banks, Auto) performance is better than estimates, said IDBI Capital.

According to ICICI Securities, on a free-float (FF) basis, PAT growth (y-o-y) within the Nifty50 index is around 3 per cent. Revenue and EBITDA y-o-y growth (non-financials) stand at 25 per cent and -1 per cent respectively. For the broader NSE200 universe, the FF PAT contraction is about 4 per cent, ICICI Securities said. “Overall y-o-y increase in aggregate profit during Q2-FY23 for the NSE200 universe is primarily being driven by financials, whose profit pool expanded 47 per cent,” it added.

However, Motilal Oswal Financial said the spread of earnings has been “decent with 70 per cent of our universe” either meeting or exceeding profit expectations. “Earnings growth of the 98 MOFSL Universe companies declined 7.4 per cent y-o-y (estimates -10.7 per cent y-o-y),” it added.

On the flip side, according to ICICI Securities, commodity companies within the NSE200 have slumped into the loss pool on an aggregate basis due to declining realisations as global prices cool off along with introduction of new taxes (windfall taxes, export duty, etc).

“The contraction in aggregate PAT within commodities is significantly higher than the expansion in profit pool of other non-financial stocks so far (IT, auto, industrials, tobacco, consumption, RIL and others),” it added.

Nifty: Little headroom

The Nifty50 is now up nearly 4 per cent YTD CY22. “With this rally, Nifty now trades at 22x FY23, comfortably above the LPA and offers limited upside in the near term, in our view. We reckon the upside from here will be a function of stability in global and local macros, and continued earnings delivery v/s expectations,” said Motilal Oswal.

Going by results declared till now, IDBI Capital sees low chance of downgrades of FY23E/FY24 Nifty50 EPS. “Nifty50 continues to trade at slight premium to historical averages. India could continue to outperform other global indices as commodities, after peaking in April 2022, have been weakening and October 2022 has seen further weakness,” it added.