India Inc topline to see modest rise

With consumer demand expected to stay muted, analysts expect India Inc to report a modest topline growth in FY24 driven by the good performance of banks and the automobile sector. Operating margins, however, are tipped to expand as prices of key commodities soften. Analysts at Kotak Institutional Equities expect the net profits of the Nifty-50 Index to grow at an estimated 12.6% in FY24 and 15.2% in FY25.

Softer prices of key inputs are expected to boost corporate India’s margins in the current year even as demand, especially for consumer products remains sluggish, impacting the topline. Analysts at Jefferies noted that consumption demand trends remain weak overall, including in rural India.

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While some companies saw a pick-up in volumes in Q4FY23, for many the growth was similar to that seen in previous quarters. “Commentary and confidence on pickup in growth was mixed,” Jefferies wrote.

The subdued consumption demand is corroborated by the anaemic 2.8% year-on-year increase in Private Final Consumption Expenditure (PFCE) in Q4FY23 on the back of a 2.2% y-o-y growth in Q3FY23.

Easing inflation, analysts said, should help sustain the current level of demand in urban areas and revive demand in rural India unless the monsoons turn out to be weak. “Lower inflation should support rural consumption, but we expect urban discretionary consumption to flat line, reflecting lagged rate hike effects,” Sonal Varma, chief India economist at Nomura observed.

Pranjul Bhandari, chief economist HSBC noted that while ‘the tepid 2.8% y-o-y growth in private consumption could be revised subsequently, it is also possible that it is a sign of the slowdown that could follow’.

Analysts at Kotak wrote last week the market seems to be ‘liking the recovery in profitability but ignoring the continued weakness in volumes in consumption sectors in the short term’. Moreover, the Street, they noted, is assuming a strong recovery in volumes but ‘dismissing the likely compression in profitability in the medium term’.

Banks and non-bank lenders reported strong numbers for the year and are expected to fare well in the current year with demand for credit expected to grow at 13% on the back of a 16.5% growth in FY23. Moreover, with the interest rate cycle likely approaching a peak and the liquidity situation expected to be comfortable margins too should sustain.

The results of software service companies were disappointing with the demand from clients turning out to be less strong than anticipated. With recession in the US not imminent but not completely ruled out either, India’s IT services players must brace for a delayed approval cycle and a slowdown in spends in some key verticals. However, a strong deal pipeline inspires confidence. The outlook for capital good makers is good given the expected pick up in infrastructure spends and the strong order books.

Corporate India posted strong top line growth in FY23 driven by increases in both volumes and prices.However, the bottom line was subdued with higher raw material and interest costs weighing down profits. Net profits for a sample of 3,345 companies (excluding banks and financials) were down 10% for the year although net sales were up a strong 24%. The operating profit margin for the universe contracted nearly 300 basis points to 13%.

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Results for the March quarter were fairly good with the Nifty 50 companies posting better-than-expected operating and net profits. The Nifty exited FY23 with an earnings growth of 11.5%, driven by strong earnings of banks. Aggregate numbers for corporate India were dragged down by earnings of metals producers which offset the good results of automobiles manufacturers and the in-line numbers of software players, consumer goods makers and oil and gas producers.

With consumer demand expected to stay muted, analysts expect India Inc to report a modest topline growth in FY24 driven by the good performance of banks and the automobile sector. 

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