Five sectoral trends from India Inc’s third quarter result

India Inc’s Q3 performance surpasses expectations; and low likelihood of downgraded EPS estimates for the current fiscal year.

According to a report by JM Financial, India Inc’s performance in the third quarter of the current fiscal year was better than expected. The report predicts that there is a low likelihood of EPS estimates for the current fiscal year being downgraded.

The report highlights key trends including easing inflation, rural demand stabilizing, and services exports remaining strong despite slowdowns in developing markets.

Among the 175 companies covered by JM Financial, 68% of entities have met or exceeded earnings estimates. Revenue continues to be concentrated in oil and gas, auto, metals, and IT services.

The BFSI (banking, financial services, and insurance) sector accounted for over half of the profit pool, with private banks holding 18% of the profit pool and PSU banks holding 12%.

The banking sector has seen continued strong credit growth, with deposit growth slowly picking up pace, resulting in moderate credit costs due to resilient asset quality across lenders. On the other hand, the IT sector experienced weak revenue in the third quarter due to seasonal factors like furloughs, and the demand outlook remains uncertain, despite benefiting from cost takeout and vendor consolidation trends.

Within the consumer sector, larger companies have outperformed growth forecasts, driven in part by further price hikes as the volume trajectory remains mixed. While rural slowdown is likely bottoming out, the management commentaries suggest that growth acceleration may not be around the corner. In the auto industry, gross margin and EBITDA margin expansion were witnessed during the quarter, with most companies performing ahead or in line with expectations, and strong demand momentum continues in PVs and CVs.

Discretionary spend-led businesses, such as Zomato and Nykaa, faced growth headwinds in internet companies, while loss-making companies showed profitability improvement and a clear path to profitability, according to JM Financial.

Following the Q3 results, the brokerage prefers private banks, autos, and cement sectors, while it said that the capital goods and industrial sector would be the immediate beneficiaries of the revival in private capex.

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