Brokerages bullish on FY24 earnings, but cautionary notes emerge for FY25
Brokerages express optimism in the wake of favorable second-quarter earnings, with Nifty results meeting or exceeding expectations, bolstering confidence in estimated earnings growth for FY24.
Brokerages have been quite happy with the second quarter of this financial year's earnings with either a meet or beat on the Nifty earnings and so the Street believes that FY24 estimated earnings growth is well and truly on.
Nifty earnings
Motilal Oswal Financial Services has revised its Nifty earnings projections upwards by 1% for FY24 to ₹996. Nuvama Institutional Equities said the FY24E EPS growth estimated is largely unchanged at 15–16% against 10% in FY23 and this implies that the asking rate for H2FY24E is 8–10% vs 25% in H1FY24.
The short point is the Street believes that FY24E numbers may not be at risk but they caution that the 15% Earnings Per Share (EPS) growth forecast for FY25 seems optimistic as margin tailwinds would likely fade while demand headwinds still loom.
Brokerage verdict on Q2FY24 overall earnings
Jefferies review states that it has cut FY24 earnings estimates for 51% of 150 companies which is among the highest downgrade ratios in the past 7 quarters. Motilal Oswal Financial Services' review of 239 companies under their coverage, 92 exceeded profit estimates while 66 posted a miss and 81 were in line.
Nuvama cautions on broader market earnings estimates
BSE500 companies' top line slowed to 5% year-on-year but profit after tax (PAT) surged 25% year-on-year and this made the net profit margins move to 13% which is 400 bps above pre-COVID levels despite similar top-line growth. So, Nuvama Institutional Equities cautions that this may be an unsustainable dynamic.
The reasons Nuvama Institutional Equities mentions are that the top-line slowdown is broadening from exporters, and end consumption to banks, and margin tailwinds are fading but high-end consumption and industrials remain strong though.
Now lower input prices boosted margins and reduced the working capital needs and this is what led operating cash flows in H1 of FY24 to spike 50% year-on-year. In the past quarter, superior margins drove small and midcap (SMID) earnings outperformance to large caps but remember that SMID earnings are more cyclical than large caps.
Consumption slowdown in the offing?
Consumption could potentially slow down as BSE500 private sector wage bill growth has moderated to 11% year-on-year which is close to a decadal low. Private sector wage bill growth is now in single digits for most sectors, barring. Given the fading margin tailwinds, wage bill growth could moderate further and potentially broaden the consumption slowdown.
First Published: Nov 17, 2023 5:31 PM IST
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