The July-September quarter earnings season is set to kick off today. Among the heavyweights, Tata Consultancy Services (TCS) will be the first company to announce its Q2FY24 earnings on 11 October. HCL Tech, Infosys, and HDFC Asset Management Company will announce their results on 12 October.
Amid persistent global macroeconomic concerns, analysts predict a moderate performance, with several sectors announcing modest results. Sectors like IT, chemicals, and defence are expected to report soft numbers while sectors like BFSI, pharma, auto, and consumer durables may post strong growth in the second quarter.
The September quarter will show the impact of volatile monsoons, flash floods in July, and delayed recovery in rural and consumer demand in a few segments. The demand scenario is mixed with strong demand from the upper and upper middle class while the lower class seems to be under some pressure, according to a report by Prabhudas Lilladhar.
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“Overall, we are not expecting any big bang outperformance in Q2 earnings mostly we may see mixed actions in the frontlines. In terms of sectors specific actions, we expect Pharma and Banking space both Private and PSU would give a better than expected earnings followed by Auto and Auto ancillaries while Metals, OMC’s and IT’s space can report lower than expected performance,” said Prashanth Tapse, Senior VP Research Analyst at Mehta Equities.
“The second quarter earnings season would remain mixed due to increased inflation and declining consumer spending in all sectors but we also believe in the recent selloff in the market after touching all-time highs now almost the negativity is already factored into the prices,” he added.
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Abhishek Jain, Head of Research, Arihant Capital said, the Q2 earnings season for India Inc, is expected to be a mixed affair. The metal sector is poised for solid numbers, while the consumer durables sector might show mixed results with potential margin surprises.
“Textile sector is predicted to perform well, whereas the agriculture (AGricam) sector is expected to have a positive outlook, although margins may be impacted due to higher channel inventories. Overall, cautious optimism is observed with varying performance projections across sectors,” Jain said.
Here’s a look at the sector-wise earnings expectations for the quarter:
BFSI
The Indian banking sector is expected to report solid year-on-year growth on the back of healthy credit growth due to continued traction in the Retail and SME segments, according to a report by Motilal Oswal Financial Services. Private Banks, Public Sector Banks (PSBs), and NBFCs are expected to grow around 30 per cent, 20 per cent, and 33 per cent year-on-year, respectively.
However, the brokerage expects margin compression and increased operating costs to impact the overall growth trajectory. The net interest margins (NIMs) are likely to moderate further due to the increasing cost of deposits and stagnating loan yields.
Information Technology (IT)
Axis Securities expects the IT services sector to report muted growth in the September quarter amid difficult times from the world’s biggest economies. Major firms are likely to shift their focus on cost optimizations resulting in higher cost take-out deals, vendor consolidation, and lower discretionary spending.
It expects largecap IT companies to post -1 per cent to 1.5 per cent growth in revenue on a quarter-on-quarter (QoQ) basis. The midcap IT companies are likely to outperform their largecap peers.
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Auto Sector
Motilal Oswal Financial Services anticipates the auto sector to post 87 per cent year-on-year growth in earnings on a low base, mainly driven by Tata Motors. Excluding Tata Motors, the sector is likely to grow at 39 per cent YoY, led by Maruti Suzuki, M&M, Ashok Leyland, MRF, and Bajaj Auto. EBITDA margins are expected to grow 200 bps for Auto equipment manufacturers, excluding Tata Motors, on the back of lower raw material costs and operating leverage benefits.
Oil & Gas
The sector led by OMCs is predicted to report 49 per cent year-on-year growth in the September quarter on account of strong marketing margins of OMCs. Profit after tax (PAT) is expected to grow 122 per cent year-on-year and fall 3 per cent on a sequential basis, according to Motilal Oswal.
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