Q3FY23 Strategy: Stability in banks, discretionary tanks

16 Feb 2023 , 11:43 AM

Q3FY23 saw an aggregate Sales/Ebitda/PAT growth of 16%/11%/17% on a 3yr Cagr basis, for a sample of 296 companies out of the BSE500. However, on a YoY basis Ebitda and PAT contracted by -4%/-2%. Banks, Autos and Capital Goods reported a good set of numbers, while Retail, Consumer Discretionary, Building Materials and Consumer Goods fared poorly.

Sectoral Overview:

Banks, Autos and Cap Goods had a strong quarter. IT was apparently in good health, but three of the big six (including LTI-MT) reported slowdown. Big FMCG had a bad quarter, and so did Retail, Consumer Discretionary and Consumer Good companies. Healthcare and Chemicals reported a mixed set of numbers. Building Materials also reported a sharp slowdown in contrast to RE sector. 

Earnings Change:

Sectors that saw the highest FY24 PAT upgrades during the result season include Travel (8%), PSU Banks (6%), Private Banks (3), and Utilities (3%). On the other hand, Business services (16%), Consumer Goods (11%), Media (10%) and Consumer Discretionary (6%) saw sharp downgrades. Companies that saw the highest upgrades were Bank of India, Indian Hotels, Torrent Power and Shriram Finance; while India Cements, Quess Corp, Prism Johnson and Zee saw downgrades.

Analysts at IIFL Capital Services continue to prefer both Private and PSU banks. Amongst Utilities, they like NTPC over Power Grid because the latter has not reacted to REIT/Invit tax arbitrage removal in the budget. BoB, SBI, Lemon Tree Hotels look very interesting (BoB top pick), while Ramco, Havells and Voltas look set to underperform. 

Analysts of IIFL Capital Services top large-cap buys – Bharti, BOB, SBI Life, Indigo, NTPC, and Sun Pharma. Their top sells remain Shree Cement, Divis, IRCTC, Wipro and Aarti Industries.