India Inc.’s rockstars of Q2 and things analysts say investors should watch out for

• Banks, Financial Services and Insurance (BFSI), automakers, chemicals, aviation, retail and chemical companies emerged as the rockstars of India Inc.’s Q2 earnings.
• Overall, India Inc. reported revenue growth of 24% year-on-year in Q2 FY23, with total revenue of 1,917 companies at ₹25.6 lakh crore.
• While the BFSI sector reported earnings upgrades as a result of nearly a decade of high credit growth, auto companies provided the celebratory boost.
• From private and public sector banks to car companies, chemical manufacturers and more, these are India Inc.’s top performing companies. this quarter.

Markets always follow the outperformers because that’s what generates alpha. India Inc has returned to double-digit earnings growth after several years as companies have spent time cleaning their balance sheets and deleveraging. Corporate India’s total revenues were up 24% year-on-year, driven by key sectors such as BFSI and auto. Despite this, some sectors performed better than others.

https://londonbusinessblog.com/ India decided to dig deeper into the September quarter results to find the stars and also assess whether they would continue to outperform the wider universe.

Overall, India Inc. reported revenue growth of 24% year-on-year in Q2 FY23, with total revenue of 1,917 companies at ₹25.6 lakh crore. However, according to a report by Bank of Baroda, profitability declined due to inflation, resulting in net profit falling by 5.4% to ₹2.19 lakh crore.

The banking, financial services and insurance (BFSI) sector was one of the standouts, posting 19% year-on-year growth in Q2 net interest income, driven by strong demand for credit. A reduction in non-performing assets and thus provisions also contributed to the growth of the net result.

BFSI companies are seeing earnings upgrades, asset quality improvements

In the BFSI sector, PSU banks won the maximum profit upgrades, according to a report from SBI Securities.

Non-Banking Financial Companies (NBFC) reported net profit growth of 23.5% year-on-year, while also reporting an improvement in asset quality.

In general, SBI Securities’ choices in the BFSI sector include large and medium-sized private sector banks such as Axis Bank, ICICI Bank, HDFC Bank, Kotak Mahindra, Bank of Baroda, Canara Bank, and Bank of Maharashtra. In the NBFC segment, the report lists Bajaj Finance and CanFin Homes, while ICICI Lombard and HDFC Life are the favorites in the insurance segment.

Automakers are providing a celebratory boost by lowering commodity prices to further improve margins

In the auto sector, the celebratory momentum drove up customer demand across all segments, with auto companies confident of further improvement in margins in the second half of FY23.

In its report, SBI Securities states that of the nine automakers in the sample, second-quarter sales grew 34% year-on-year, while net profit rose 40% over this period.

Auto parts, on the other hand, had a mixed quarter, with a total of 56 companies reporting a 26% year-over-year sales increase in the second quarter, while profits increased 23% during this period.

This is what the second half of FY23 looks like for rock stars

Going forward, SBI Securities says it expects credit growth to remain healthy, which is built into the target prices of its top picks from the BFSI sector.

In the automotive sector, companies expect to further improve their operating margins in the second half of FY23 as commodity prices cool. The SBI Securities report notes that passenger car demand remains strong, and a good monsoon has also helped maintain momentum in tractor sales.

The FMCG sector, which reported revenue in line with estimates, outperformed Britannia, United Spirits and ITC. However, the research firm says the margin recovery has likely been postponed to Q4, rather than its previous expectation of a recovery in Q3.

The capital goods sector again performed very well in the second quarter, with a strong order book. However, unresolved supply chain issues and high logistics costs could derail the momentum, the research firm said.

Here are SBI Securities’ top stock picks based on Q2 performance:

Note: Current market price as of November 29, 2022

India Inc.’s Q2 – Key Takeaways

Overall, the average revenue growth of 1,917 companies in the second quarter was 24%, up from 27.4% in the same period last year, according to a report from Bank of Baroda.

Of the 38 sectors analyzed, 15 reported above-average revenue growth, ranging between 25 and 110%. These outperformers include car, trade, catering, gas, electricity.

IT spending, ARPU, input costs and monsoon are among the most important things to watch out for

Some of the key things to watch out for in India Inc. are the outlook for IT spending, average revenue per user (ARPU) trends in the telecom sector, input costs in industries such as chemicals, metals, auto and cement.

For the agrichemical sector, monsoons will play a key role, according to analysts at SBI Securities. “However, the outlook for the upcoming rabi season looks favorable given the high moisture content,” said the SBI Securities report.

In addition, consumption trends, the global supply and demand scenario and interest rates will also be important factors to pay attention to.

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