Q3 earnings growth slowest in 6 quarters. What lies ahead?


Fighting the third Covid wave and high base effect, continued to clock a healthy quarterly performance in Q3 of FY22. Data compiled by Business Standard shows that combined net profits of 3,191 listed companies zoomed 26.9 per cent year-on-year, while their net sales increased 24 per cent. The reported combined net profits of Rs 2.39 trillion in Q3FY22 were up from the Rs 1.88 trillion a year earlier, but down marginally from the Rs 2.4 trillion in Q2FY22. Meanwhile, top line, or net sales, growth was higher in the recently concluded quarter than in Q2FY22. This was especially true for the non-financial companies, which are facing the brunt of Trend analysis by global brokerage Jefferies points out that IT companies reported strong revenues growth with a positive margin trend, while private banks clocked sequential loan growth and improved asset quality. Further, consumer staple companies saw meagre volume growth due to weakness in rural margin, but managed to support Ebitda on price hike. Auto companies, too, reported significant sequential Ebitda improvement on price hikes. Lastly, insurance and real estate companies reported strong top-line growth but pharma companies’ US generic pricing saw price erosion of near double digits. That said, earnings growth in Q3FY22 were the lowest since Q2FY21 quarter due to a combination of sub-par top line growth and decline in margins. The combined net profits of non-cyclical companies were up just 1.8 per cent y-o-y in Q3FY22, growing at the slowest pace in the last six quarters. Going forward, analysts remain skeptical about India Inc’s earnings performance. A poor showing by non-cyclical sectors could hurt the corporate earnings, but the downside may remain capped if the RBI’s projection of 4.5% in FY23 is met, which could mitigate cost pressures. Let’s go to Siddhartha Khemka, Head – Retail Research at Motilal Oswal Financial Services to know what cues should investors track for the upcoming quarters. In nutshell, analysts have retained their earnings outlook for now but they will closely monitor commodity prices and how the companies will balance price hike and volume growth. On Thursday, global market sentiment amid Russia and Ukraine stand-off will guide the market sentiment. That apart, weekly F&O, stock-specific and commodity prices will sway indices.

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