Kotak Institutional Equities expects a 12% year-on-year (YoY) growth in the cumulative profit of Nifty 50 companies, and Motilal Oswal Financial Services has pegged it at 10%.
This will be the fourth consecutive quarter of double-digit profit growth for Nifty 50 companies. Infact, 17 Nifty companies are likely to report a profit growth of more than 30% YoY.
What’s also interesting to note is that this growth is coming despite muted performance of the heavyweight IT sector.
HDFC Bank, Tata Steel, Reliance Industries, ICICI Bank and JSW Steel are likely to drive the earnings growth for Nifty companies, according to Motilal Oswal.
Much of the profit growth is likely to be due to easing raw material costs as the overall consumption remains uneven in the domestic market amid subdued rural recovery.
Moreover, the pace of growth in profit has moderated from the September quarter. In the second quarter of the financial year, the net profit growth was more than 20%.
Index Heavyweights
HDFC Bank
The private sector lender is seen reporting more than 30% YoY growth in net profit for the December quarter, on the back of healthy net interest income and moderate rise in provisions.
The lender’s gross advances rose more than 62% YoY to Rs 24.7 lakh crore, according to the provisional numbers released by the bank. Domestic retail loans more than doubled YoY.
ICICI Bank
The second largest private sector lender is expected to report over 20% growth in profits, on the back of healthy interest income, lower provisions and lower slippages.
Motilal Oswal believes that the lender is well-cushioned with higher provisions on its balance sheet, and is the best in the industry.
Reliance Industries
The diversified conglomerate is seen reporting a 12% YoY growth in consolidated net profit, led by a double-digit growth in both the topline and operating profit. Continued growth in digital services and retail business will support the overall earnings.
JSW Steel
The steelmaker’s net profit is expected to more than triple YoY on a low base, led by a double-digit price-led growth in the topline and sharp increase in the operating profit.
Maruti Suzuki
The country’s largest four-wheeler maker is seen reporting more than 30% YoY growth in profits, primarily due to a significant fall in raw material costs which will drive the profitability. Strong volumes will lead to a double-digit growth in revenue.
What should investors do?
One of the major factors supporting India’s premium valuation is strong earnings growth, and analysts expect this to continue in 2024 as well.
“With economic growth still resilient in India, we continue to expect strong mid-teen corporate profit growth in India,” American investment bank Goldman Sachs said.
After an expected 20% earnings growth in 2023, the bank expects MSCI India profits to grow 15% in 2024, and another 14% in 2025, with growth likely to be broad-based across sectors.
However, most analysts are in favour of domestic cyclicals as the macro factors remain conducive and consumption is seen improving further.
For most money managers, BFSI, infrastructure, capital goods and capex-related companies, and manufacturing are the major themes to play in the medium to long term.
In the automobile space, Tata Motors and TVS Motor are the top picks for YES Securities, while in the banking sector, ICICI Bank is among the top picks for Motilal Oswal.
“ICICI Bank has room for re-rating as it continues to deliver robust return ratios and sustained growth, led by its focus on enhancing core operating performance,” Motilal Oswal said.
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