Nifty FY24 earnings growth at 20% to outperform most Asian peers: Jefferies

Nifty50's earnings growth, estimated at 20 per cent by global research and brokerage firm Jefferies for financial year 2023-24 (FY24), will be amongst the top three in the Asian region, and is likely to outperform peers.

Asean 40 index with 29.1 per cent estimated earnings growth and Straits Times Index (STI) with 29.1 per cent estimated earnings growth are the only two other indices in the Asian region that are likely to outperform India, suggests the recent Jefferies report, coauthored by Mahesh Nandurkar, their managing director along with Abhinav Sinha and Nishant Poddar.

On the other hand, TAIEX, KOSPI, EM Index, S&P 500, Asia ex-Japan Index are some of the prominent global indices, which Jefferies believes, are likely to see a negative growth in earnings in FY24.

63 per cent of Nifty companies (ex-financials), Nandurkar wrote, are projected to see a margin increase in FY24, which would contribute 5-6 ppts to EBITDA/PAT growth.

“Margin expansion is an earnings driver and has added 5 percentage points (ppts) to FY24 earnings growth. Autos, staples, cement and metals are expected to see the biggest margin improvement primarily on declining cost pressures. Improving supply chains, declining commodity cost pressures, price hikes etc. are expected to drive margin improvements across all sectors, barring information technology (IT),” the report suggests.

“However, even if margin expansions do not come through, the Nifty overall earnings per share (EPS) growth / domestic companies EPS growth looks still reasonable at 14 per cent/15 per cent YoY,” Jefferies said.

Jefferies has considered the earnings by sectors such as IT, metals, oil & gas and part of earnings of select stocks (Reliance Industries, Bharti-Africa, Tata Motors-JLR, and exports for Pharma, Bajaj, UPL) as 'foreign' earnings for their analysis.

Among sectors, Jefferies expects the consumer discretionary and staples sectors to see a margin expansion of 2.4 / 0.7ppt in FY24. Autos, on the other hand, are expected to see a broad-based margin improvement in FY24, as chip shortage eases and raw material pressures remain muted. In this backdrop, Tata Motors is likely to benefit the most, Jefferies said, with 3.7ppt improvement in margin followed by Maruti (2ppt), Hero Motors (1.8ppt) and Bajaj Auto (1.5ppt).

Margins for the consumer staple sector, too, are likely to benefit as commodity inflation eases with HUL (1.1ppt), Tata Consumers (0.8ppt), Nestle and ITC (0.5ppt each) seeing margins rise.

"The financial sector earnings are projected to grow at a still strong 18 per cent in FY24; as asset quality stays strong and system loan growth of 12-14 per cent supports healthy topline expansion," the Jefferies note said.