It was yet another strong quarter for India Inc as most companies reported better-than-expected numbers for the three months ended December, triggering further upgrades in earnings.

Earnings of companies that are part of the Nifty 50 grew by 17% year-on-year (YoY), against expectations of an 11% growth, according to Motilal Oswal Financial Services.

However, the overall growth was slower in the December quarter, compared with the September quarter.

Five Nifty companies – Tata Motors, HDFC Bank, Tata Steel, ICICI Bank, and JSW Steel – constituted 56% of the incremental accretion in earnings, the brokerage firm said.

Domestic cyclicals such as automobiles and financials continued to propel the overall earnings growth, while they were also joined by global cyclicals such as oil and gas and metals. The only heavyweight sector to disappoint was information technology, with the overall earnings seeing a decline for the first time in 26 quarters.

Banking, financial services, and insurance, or BFSI reported a healthy 22% YoY growth in earnings, while the automobile sector registered a 60% growth. For companies in the metal sector, profits rose sharply on the back of easing cost pressures and a low base of last year.Meanwhile, oil marketing companies’ profitability surged 4.6 times YoY in the last quarter due to strong marketing margins. So, the aggregate operating profit or EBITDA increased by 10% YoY in the last quarter.Despite the good show by companies, Motilal Oswal pointed out that the earnings upgrade-to-downgrade ratio turned weaker for FY25. While for 58 companies earnings estimate was upgraded by over 3%, 84 companies saw an earnings downgrade of over 3%.

“The earnings upgrade/downgrade ratio of 0.6x was the worst since 3QFY22,” the brokerage firm said. Nevertheless, analysts see a double-digit growth in earnings for both FY24 and FY25.

“We expect net profits of the Nifty 50 index to grow 18.9% in FY24 and 10.2% in FY25,” said Sanjeev Prasad of Kotak Institutional Equities.

Pain Points

Even though the companies reported strong growth in profits in Q3, this was primarily due to easing cost pressures and higher realisation.

Consumption demand remained weak for fast-moving consumer goods and discretionary companies, which saw muted volume growth, whereas premium real estate witnessed strong investment demand.

“The dichotomy reflects continued challenges of low-income households (low income, high inflation) and decent financial condition of high-income households,” Kotak’s Sanjeev Prasad said.

Prasad expects consumption demand to recover only gradually over the next 2-4 quarters.

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