The Nifty 50 Beats estimates, which represent the 50 largest companies by market capitalization on the National Stock Exchange of India, delivered a strong performance in the third quarter of the fiscal year 2023–24, beating the estimates of most analysts. According to a report by Motilal Oswal, a leading financial services firm, the Nifty 50 companies reported a 25% year-on-year growth in revenue and a 38% year-on-year growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) in Q3. The report also highlighted the top earnings upgrades and downgrades among the Nifty 50 companies, based on their Q3 results and outlook.
Nifty 50 beats estimates top-earnings upgrades
Motilal Oswal identified 10 companies that received the highest earnings upgrades for the fiscal year 2023–24, based on their Q3 performance and guidance. These companies are:
Tata Motors: The auto major reported a robust recovery in its domestic and international operations, driven by strong demand for its passenger and commercial vehicles. The company also benefited from cost-reduction initiatives and an improved product mix. Motilal Oswal increased its earnings estimate for Tata Motors by 86% for FY24.
Coal India: The state-owned coal producer witnessed a sharp improvement in its volumes and realizations as power demand and coal prices surged in Q3. The company also announced a hefty interim dividend of Rs. 7.5 per share, reflecting its strong cash flow generation. Motilal Oswal raised its earnings estimate for Coal India by 51% for FY24.
Hero MotoCorp: The largest two-wheeler manufacturer in India posted healthy growth in its revenue and margins, despite the challenges posed by rising input costs and supply chain disruptions. The company also launched several new products and expanded its global presence in Q3. Motilal Oswal hiked its earnings estimate for Hero MotoCorp by 29% for FY24.
Cipla: The pharma giant delivered a solid performance in its domestic and international markets, driven by its chronic, acute, and COVID-19 portfolios. The company also maintained its leadership position in the respiratory segment and gained market share in the US. Motilal Oswal increased its earnings estimate for Cipla by 28% for FY24.
Bharti Airtel: The telecom leader reported strong growth in its revenue and subscriber base as it continued to benefit from favorable industry dynamics and its superior network quality. The company also improved its profitability and cash flow generation in Q3. Motilal Oswal raised its earnings estimate for Bharti Airtel by 27% for FY24.
OPEN YOUR ACOUNT, M.STOCK👉CLICK HERE
Top earnings downgrades
Motilal Oswal also identified 10 companies that received the highest earnings downgrades for the fiscal year 2023–24, based on their Q3 performance and outlook. These companies are:
UPL: The agrochemical major reported a disappointing performance in Q3, as its revenue and margins declined due to adverse weather conditions and currency fluctuations in its key markets. The company also faced higher raw material costs and lower inventory gains. Motilal Oswal reduced its earnings estimate for UPL by 23% for FY24.
LTIMindtree: The IT services company reported lower-than-expected growth in its revenue and margins as it faced headwinds from the travel and hospitality vertical and the ramp-down of a large deal. The company also witnessed a decline in its deal pipeline and attrition rate in Q3. Motilal Oswal cut its earnings estimate for LTIMindtree by 18% for FY24.
ITC: The diversified conglomerate reported a muted performance in Q3, as its cigarette business was impacted by the tax hikes and the COVID-19 restrictions. The company also faced challenges in its FMCG, hotel, and paper businesses. Motilal Oswal lowered its earnings estimate for ITC by 15% for FY24.
Divis Labs: The API manufacturer reported a lower-than-expected growth in its revenue and margins as it faced pricing pressure and competition in its key products. The company also incurred higher expenses for capacity expansion and R&D activities in Q3. Motilal Oswal reduced its earnings estimate for Divis Labs by 14% for FY24.
HUL: The FMCG giant reported moderate growth in its revenue and margins as it faced a slowdown in rural demand and the personal care segment. The company also witnessed higher input cost inflation and competitive intensity in Q3. Motilal Oswal cut its earnings estimate for HUL by 13% for FY24.
Margin tailwinds
Motilal Oswal noted that the Nifty 50 companies enjoyed a margin tailwind in Q3, as their EBITDA margin expanded by 370 basis points year-on-year to 24.4%, the highest in the last 15 quarters. The report attributed this margin expansion to the following factors:
Operating leverage: The Nifty 50 companies leveraged their fixed costs and improved their capacity utilization as economic activity and demand recovered in Q3.
Cost rationalization: The Nifty 50 companies implemented various cost-cutting measures and efficiency initiatives, such as reducing travel, marketing, and discretionary expenses, in Q3.
Product mix: The Nifty 50 companies improved their product mix and focused on higher-margin segments, such as digital, specialty chemicals, and premium products, in Q3.
OPEN YOUR ACCOUNT, 5PAISA👉CLICK HERE
Sectoral trends
Motilal Oswal also analyzed the sectoral trends among the Nifty 50 companies in Q3 and observed the following patterns:
Autos: The auto sector reported a strong recovery in Q3, as the demand for passenger vehicles, two-wheelers, and tractors picked up. The sector also benefited from the festive season, new launches, and rural demand. However, the sector faced challenges from rising input costs, supply chain disruptions, and semiconductor shortages.
Financials: The financial sector reported a healthy performance in Q3, as asset quality and credit growth improved. The sector also witnessed lower provisioning and higher collection efficiency. However, the sector faced headwinds from low interest rates, margin pressure, and regulatory uncertainty.
Metals: The metal sector reported a stellar performance in Q3, as steel and non-ferrous prices surged in the domestic and international markets. The sector also had a higher volume and a lower cost of production. However, the sector faced risks from environmental regulations, trade barriers, and demand volatility.
Oil & Gas: The oil & gas sector reported a mixed performance in Q3, as the upstream and downstream segments benefited from the higher crude oil and refining margins, while the gas and petchem segments suffered from the lower gas and polymer prices. The sector also faced challenges from the COVID-19 impact, subsidy burden, and policy changes.
Technology: The technology sector reported a robust performance in Q3, as the demand for digital transformation, cloud, and cybersecurity solutions increased. The sector also witnessed a higher deal pipeline, client additions, and revenue growth. However, the sector faced challenges from the talent shortage, attrition, and wage inflation.
What are some challenges faced by the Nifty 50 companies?
Some of the challenges faced by the Nifty 50 companies are:
Rising input costs and supply chain disruptions due to inflation, commodity price fluctuations, and semiconductor shortages.
Low interest rates, margin pressure, and regulatory uncertainty in the financial sector.
Adverse weather conditions and currency fluctuations in the agrochemical sector.
Pricing pressure and competition in the pharma and API sectors.
Slowdown in rural demand and personal care segment in FMCG sector 2.
Environmental regulations, trade barriers, and demand volatility in the metal and oil & gas sectors.
Talent shortage, attrition, and wage inflation in the technology sector.
What is the outlook for the Nifty 50 companies in FY24?
The outlook for the Nifty 50 companies in FY24 is generally positive, as most analysts expect strong earnings growth and recovery from the impact of the COVID-19 pandemic. According to an ETMarkets survey, over 70% of the brokers see Nifty 50 at around 18,000 levels by the end of FY24, implying a 6% upside from the current levels. Similarly, a report by Mint suggested that Nifty 50 could reach 25,000 by December 2024, with a 15% upside potential.
BEST BOOK: STOCK MARKET👉CLICK HERE
Some of the factors that could drive the Nifty 50’s performance in FY24 are:
The revival of domestic and global demand, supported by the vaccination drive, fiscal stimulus, and monetary easing,.
The improvement in the asset quality, credit growth, and profitability of the financial sector, which has a high weight in the Nifty 50 index,.
The strong performance of the technology, metals, oil & gas, and auto sectors, which have benefited from the digital transformation, commodity price surge, crude oil recovery, and demand pickup123,.
The margin expansion and cost rationalization of the Nifty 50 companies, which have leveraged their fixed costs, improved their product mix, and reduced their discretionary expenses,.
However, there are also some challenges and risks that could hamper the Nifty 50 performance in FY24, such as:
rising input costs and supply chain disruptions due to inflation, commodity price fluctuations, and semiconductor shortages.
low interest rates, margin pressure, and regulatory uncertainty in the financial sector.
adverse weather conditions and currency fluctuations in the agrochemical sector23.
The pricing pressure and competition in the pharma and API sectors.
The slowdown in rural demand and personal care segments in the FMCG sector 23.
environmental regulations, trade barriers, and demand volatility in the metal and oil & gas sectors.
The talent shortage, attrition, and wage inflation in the technology sector123.
Therefore, the outlook for the Nifty 50 companies in FY24 is optimistic, but not without challenges. Investors should conduct thorough research, manage risk appropriately, and stay informed to navigate this crucial period successfully.
What is the impact of COVID-19 on the Nifty 50?
The impact of COVID-19 on the Nifty 50, the benchmark index of the Indian stock market, has been significant and varied, depending on the severity and duration of the pandemic, the policy responses, and the sectoral dynamics. Here are some of the key points to note:
The global financial markets experienced widespread uncertainty and panic in 2020 due to the COVID-19 pandemic. Stock markets across the globe suffered strong losses as concerns over the pandemic and its potential economic impact grew.
The Nifty 50 index also witnessed a sharp decline of about 38% from its peak in January 2020 to its trough in March 2020 as lockdowns, disruptions, and demand shocks hit the Indian economy hard.
However, the Nifty 50 index also staged a remarkable recovery of about 80% from its low in March 2020 to its high in February 2021, as economic activity and sentiment improved, supported by the fiscal and monetary stimulus, vaccine development, and earnings growth.
The second wave of the COVID-19 pandemic in India, which started in April 2021, has also affected the Nifty 50 performance, as rising cases, deaths, and restrictions have dampened market optimism and outlook.
The Nifty 50 index has dropped about 6% from its record high in February 2021, and more than half of its constituent stocks have fallen more than 10% from their respective 52-week highs as of April 20214.
The impact of COVID-19 on the Nifty 50 has also been uneven across sectors, as some sectors have benefited from the pandemic-induced changes while others have suffered from the pandemic-induced challenges.
The sectors that have performed well during the pandemic include technology, metals, oil & gas, and auto, which have benefited from the digital transformation, commodity price surge, crude oil recovery, and demand pickup.
The sectors that have performed poorly during the pandemic include agrochemicals, IT services, FMCG, pharma, and API, which have suffered from adverse weather conditions, currency fluctuations, pricing pressure, competition, a slowdown in rural demand, and the personal care segment.
Conclusion
The Nifty 50 companies delivered a strong performance in Q3, beating the estimates of most analysts. The companies also enjoyed a margin tailwind and reported a positive outlook for the future. Motilal Oswal identified the top earnings upgrades and downgrades among the Nifty 50 companies, based on their Q3 results and guidance. The report also analyzed the sectoral trends and highlighted the opportunities and challenges for the Nifty 50 companies in the coming quarters.
FAQs
Q: Which sectors performed well and which sectors performed poorly in Q3?
Ans. According to Motilal Oswal, the sectors that performed well in Q3 were autos, financials, metals, oil & gas, and technology, while the sectors that performed poorly in Q3 were agrochemicals, IT services, FMCG, pharma, and API.
Q: What were the margin tailwinds for the Nifty 50 companies in Q3?
Ans. The margin tailwinds for the Nifty 50 companies in Q3 were operating leverage, cost rationalization, and product mix, which resulted in a 370 basis point year-on-year expansion in EBITDA margin to 24.4%, the highest in the last 15 quarters.
Q: Which companies received the highest earnings upgrades and downgrades for FY24 by Motilal Oswal?
Ans. The companies that received the highest earnings upgrades for FY24 by Motilal Oswal were Tata Motors, Coal India, Hero MotoCorp, Cipla, and Bharti Airtel, while the companies that received the highest earnings downgrades for FY24 by Motilal Oswal were UPL, LTIMindtree, ITC, Divis Labs, and HUL.
