The corporate earnings for the fourth quarter of FY24 were robust, showing widespread outperformance across various sectors. The earnings surge was primarily driven by domestic cyclicals such as Autos, Financials, Healthcare, Capital Goods, and Cement. In contrast, global cyclicals like Metals and Oil & Gas weighed down overall profitability.
The Nifty 50 index delivered a significant beat with a net profit growth of 12% year-on-year (YoY). Five major companies—HDFC Bank, State Bank of India (SBI), ONGC, Tata Motors, and Coal India—accounted for 72% of the incremental YoY earnings increase.
Excluding Metals and Oil & Gas, the Nifty’s earnings grew by 16% YoY. The Nifty earnings per share (EPS) for FY24 increased by 2.6% to ₹1,005 from the earlier ₹980, driven largely by notable upgrades in ONGC, Coal India, and SBI. The EPS estimates for FY25 and FY26 also saw upward revisions of 0.8% each, reaching ₹1,142 and ₹1,327 respectively, according to Motilal Oswal. The brokerage now expects Nifty EPS to rise by 14% and 16% YoY in FY25 and FY26.
Motilal Oswal noted that India is currently experiencing a “mini-Goldilocks” moment, characterized by solid macroeconomic conditions, healthy corporate earnings, peaking interest rates, moderate inflation, and ongoing policy momentum.
The Q4FY24 corporate earnings have exceeded expectations, particularly in the BFSI (Banking, Financial Services, and Insurance) and Automobile sectors, which drove overall performance. Additionally, the Healthcare and Capital Goods sectors reported strong earnings growth, further boosting the overall earnings.
Despite these strong earnings, margin tailwinds from the quarter ended March 2024 have receded from a high base, necessitating a recovery in revenue growth to sustain earnings momentum. The Nifty is currently trading at a 12-month forward price-to-earnings (P/E) ratio of 19.2x, a 6% discount to its long-period average (LPA).
Sectoral Trends:
Banks: The banking sector showed a healthy performance in the March quarter, driven by robust business growth and controlled provisions. Net interest margin (NIM) performance was mixed, with many banks reporting margin improvements.
Credit growth remained strong, supported by significant traction in the retail and MSME segments. Public sector banks (PSU banks) continued to show strong improvements in operating performance, with robust growth in net interest income (NII), steady fee income, and treasury gains leading to healthy profit growth.
Autos: Vehicle volumes (excluding tractors) in Q4FY24 grew by 20% YoY, led by a strong recovery in two-wheelers and sustained growth in the SUV segment. Two-wheelers experienced the highest growth of 26% YoY during the quarter, driven by a low base and strong demand for the 125cc+ segment.
Consumer: Companies within the MOFSL coverage universe posted revenue growth of 4% YoY in Q4FY24. Demand trends were largely stable, with most companies witnessing a recovery in rural demand, particularly towards the end of Q4FY24. After a lackluster demand trend in FY24, management commentaries indicate promising outlooks backed by expected volume recovery in FY25.
Oil & Gas: The overall performance of the Oil & Gas sector aligned with MOFSL estimates, mainly driven by oil marketing companies (OMCs), GAIL India, MRPL, and PLNG. The performance of OMCs was bolstered by strong marketing margins.
Motilal Oswal’s model portfolio remains aligned with key domestic cyclical themes, underpinned by consistent earnings growth. The firm maintains an Overweight stance on Financials, Consumption, Industrials, and Real Estate. Its key preferred investment themes include Industrials, Consumer Discretionary, Real Estate, and PSU Banks.
