Takeaways from Q4FY23: IIFL Capital Services

2 Jun 2023 , 10:19 AM

Banks, Auto Ancillaries, OMCs, Tyres reported good set of numbers. Consumer Discretionary, Retail and Metals & Mining fared poorly. Overall, the BSE 500 saw a 2.5% EPS cut during the results season, with most sectors seeing downgrades. Analysts at IIFL Capital Services introduce Balkrishna Industries in their top mid-cap picks, and remove DLF and Apollo Tyres after their recent sharp outperformance. Bharti, BoB, Indigo, SBI Life and NTPC are among their top large-cap picks. 

Sectoral overview

Banks (especially PSU), Auto Ancillaries, Tyres and OMCs (falling commodity prices) had a strong quarter, witnessing margin expansion and strong PAT growth. IT had a muted quarter, with Infosys ringing the alarm bells with a poor set of numbers. Slowdown in consumer demand became apparent with the poor showing by companies in Consumer Discretionary, Retail and Consumer Goods. During the year, Metals, O&G and Media have seen ROEs fall significantly. NFA has grown by only 9% YoY.

Earnings change

Aggregate EPS for BSE 500 saw a 2.5% cut during the results season, with Retail (12%), Cement (10.5%), and Consumer Discretionary (6.9%) seeing the highest downgrades. OMCs (10.6%) and Tyres (10.1%) are the only sectors seeing meaningful upgrades. Despite downgrades, most sectors saw re-rating in the last 2 months. Ambuja, KEC, Brigade, Devyani, HDFC Life, Lodha are some stocks that have seen good price performance despite earnings cut.

IIFL view

Thanks to steep monetary tightening across AEs, analysts at IIFL Capital Services fear a pronounced growth slowdown by the end of this CY; leading to further earnings cuts across geographies. In this environment, they do not see a major capex wave happening. However, monetary easing later in the year could trigger a risk-on phase and a strong period of FII inflows, especially from 2024. Analysts at IIFL Capital Services favor sectors with earnings resilience / valuation support like Banks, Life Insurance (SBI Life), India-focused Pharma, Healthcare (KIMS), FMCG, Cement, Construction, Building Materials, Real Estate, Utilities, Telecom and select Auto. They are negative on IT, Consumer Discretionary, Cap Goods (too expensive now), Conglomerate, US-focused Pharma, Chemicals, Metals and Paints.