You are here: Home » Markets » News
Business Standard

What should investors look out for in Q4 FY22 corporate earnings?

What do the Q4FY22 results so far have to say about the state of play in India Inc? Going ahead, what can investors expect in terms of corporate earnings growth of mid-cap and small-cap stocks?

Q4 Results | corporate earnings | Investment strategy

Puneet Wadhwa & Bhaswar Kumar  |  New Delhi 

Reliance Industries on Friday reported a 22.5 per cent year-on-year growth in its consolidated net profit to Rs 16,203 crore for the quarter ended March. In the corresponding quarter of the previous financial year, it had reported a net profit of Rs 13,227 crore.

RIL’s consolidated revenue from operations jumped 36.8 per cent YoY to Rs 211,887 crore for the reported quarter. The oil-to-telecom conglomerate also reported a record annual consolidated net profit of Rs 67,845 crore for the financial year.

There have been more instances of corporate results beating estimates than missing them during the Q4FY22 earnings season so far. This was the finding of a recent ICICI Securities Limited report.

Thus far, the bulk of the results declared in Q4FY22 have been from commodity consumers, such as industrials, auto, and consumption, along with services, such as financials and information technology.

According to the report, while the impact of commodity prices was relatively less on the services sector, it has its own cost challenges, such as the high attrition rates at IT companies.

The report highlighted that instances of corporate results beating estimates have exceeded the misses within the NSE200 universe and particularly so in the mid-cap space.

As on 4th May, most commodity producers were yet to announce results, especially from the oil and gas sector. The report said that they could likely tilt the scale further in favour of more beats than misses going ahead.

It indicates that commodity consumers would continue to feel the pressure of rising input costs in subsequent quarters. A variable to watch would be the continued ability to pass on the inflation, which in turn would be a function of the demand environment.

So far, the Q4FY22 results have indicated that the mean reversion of aggregate corporate profits, which began from the decadal low point of FY20, was intact.

The ICICI Securities report expects growth to beat nominal GDP and act as an inflation hedge.

On average, corporate profits are expected to grow in the range of 15%-30% over FY22-FY24E. The NIFTY50 is likely to grow
The report said that the higher growth would be attributable to the larger impact of Covid on the mid- and small-cap space and the rapid reopening up of the economy, which was likely to show higher growth on a depressed base.

Jyotivardhan Jaipuria, founder and managing director at Valentis Advisors, said that near-term earnings could see some margin pressure and some downgrades as high commodity prices cannot be passed on immediately. However, he added, this would benefit commodity producers, which have an equally large weight in the index. Hence, overall earnings downgrades might not be high.

Jaipuria said, for sectors like cement and other home building sectors, where near-term earnings would be under pressure due to the spike in commodity prices, the fall in share prices offered investors an attractive entry price. The financial sector, where Valentis was under-weight during the Covid crisis, was headed for better days as the economy was recovering and a lot of the NPL provisioning was behind us. Jaipuria also said that while auto was an under-weight sector too. Things stood close to the bottom of the cycle and the sector could see sharp earnings growth over the next few years, especially as the chip shortage eases.

According to Vishal Periwal, Head Research for Institutional Equities & Cement / Construction Analyst, IDBI Capital, India is not seeing inflation-led demand destruction. Its 15% FY23 earnings growth depends on how inflation pans out. "We are hopeful of double-digit earnings growth for Nifty50," he says.

India Inc is confident of sustainable growth in corporate profits due to low leverage effects, the earnings beating estimates, and the nascent signs of an improving investment cycle.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Mon, May 09 2022. 07:00 IST