Indian companies’ Q2 rock stars and what investors should watch out for, analysts say | News Bharat

• Companies in banking, financial services and insurance (BFSI), automakers, chemicals, aviation, retail and chemical industries were the stars of second-quarter earnings for Indian companies.
• Overall, Indian companies reported a 24% year-on-year revenue growth in Q2FY23, with 1,917 companies recording a combined revenue of Rs 256 trillion.
• While the BFSI industry reported an upgrade in earnings due to nearly a decade of high credit growth, auto companies contributed to the festive boost.
• From private and public sector banks to auto companies, chemical makers and more, these are the top performers for Indian companies this quarter.

The market always goes after outperforming companies because that’s what generates alpha. Indian companies returned to double-digit profit growth after a few years as companies took time to clean up their balance sheets and deleverage. The total revenue of Indian companies grew by 24% year-on-year, driven by key industries such as BFSI and automotive. Still, some industries are doing better than others.

Business Insider India decided to dig into the September quarter earnings to find star names and assess whether they will continue to outperform.

Overall, Indian companies reported a 24% year-on-year revenue growth in Q2FY23, with 1,917 companies recording a combined revenue of Rs 256 trillion. However, according to a report by Bank of Baroda, net profit fell 5.4% to Rs 21.9 trillion due to a decline in profitability due to inflation.

The banking, financial services and insurance (BFSI) sector has been one of the standouts, with net interest income up 19% year-on-year in the second quarter, driven by high credit demand. A reduction in non-performing assets, as well as a reduction in provisions, also contributed to the increase in net income.

BFSI firms see earnings upgrade, asset quality improving

In the BFSI space, PSU banks received the biggest earnings upgrade, according to a report by SBI Securities.

Net profit of non-banking financial companies (NBFCs) rose 23.5% year-on-year, while asset quality also improved.

Overall, SBI Securities’ selection in the BFSI space includes large and mid-sized private banks such as Axis Bank, ICICI Bank, HDFC Bank, Kotak Mahindra, Bank of Baroda, Canara Bank and Bank of Maharashtra. In the NBFC sector, the report lists Bajaj Finance and CanFin Homes, while ICICI Lombard and HDFC Life are the top picks in the insurance sector.

Automakers drive festive boost – commodity prices soften to further boost margins

In the auto industry, the festive boost drove customer demand across segments and auto companies are confident of further margin improvement in the second half of fiscal 2023.

Among the nine automakers sampled, second-quarter revenue rose 34% year-on-year, while net profit soared 40% during the period, SBI Securities said in its report.

The automotive accessories business, on the other hand, had a mixed quarter, with 56 companies reporting second-quarter sales growth of 26% year-on-year, while profits rose 23% over the same period.

Here’s what rock stars look like in the second half of FY23

Looking ahead, SBI Securities said it expects credit growth to remain healthy, which is reflected in its target price for BFSI sector top picks.

In the auto sector, the company expects operating margins to improve further in 2H23 due to cooling commodity prices. The SBI Securities report noted that demand for passenger vehicles remained strong and a good monsoon also helped maintain momentum in tractor sales.

The FMCG sector reported earnings in line with expectations, with Britannia, United Spirits and ITC outperforming expectations. However, the research firm said the recovery in margins may have been delayed to the fourth quarter, rather than the earlier expected recovery in the third quarter.

The capital goods sector was another star sector in the second quarter, with strong orders. However, unresolved supply chain issues and high logistics costs could undermine the momentum, the research firm said.

Here are SBI Securities’ picks of the best stocks based on second-quarter results:

Note: Current market prices as of November 29, 2022

Indian companies’ second quarter – key takeaways

Overall, 1,917 companies posted an average revenue growth rate of 24% in the second quarter, compared to 27.4% a year earlier, according to a Bank of Baroda report.

Of the 38 industries analyzed, 15 experienced above-average revenue growth, between 25-110%. These outperforming industries include automotive, trading, hospitality, gas, electricity, and more.

IT spending, ARPU, input costs and monsoons are key things to watch

Key things to watch in India Inc.’s earnings include the outlook for IT spending, average revenue per user (ARPU) trends in the telecom sector, and input costs in industries such as chemicals, metals, automobiles and cement.

For the agrochemicals sector, the monsoon will play a key role, said analysts at SBI Securities. “Prospects for the upcoming rabies season look good given the high moisture content,” SBI Securities said in a report.

In addition, consumption trends, global supply and demand patterns, and interest rates will also be key factors worthy of attention.

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