The in-line revenue growth and profit beat by Indian companies in the fourth quarter substantiates an earnings 'upcycle' trend in India, according to Morgan Stanley's Ridham Desai.
Earnings growth was positive for eight of the 10 sectors tracked by Morgan Stanley, led by consumer discretionary and communication services sectors.
Companies under Morgan Stanley's coverage reported revenue, Ebitda, profit before tax and net profit growth of 14%, 17%, 21% and 24%, respectively, during the January-March quarter versus the brokerage's estimate of 13%, 19%, 21% and 19%, respectively, according to a note co-authored by equity strategists Ridham Desai and Nayant Parekh.
The study showed that earnings beat ratio remained at 54% in the fourth quarter ended March 2023. The relative stocks outperformance after earnings improved sequentially to clock a six-quarter high.
The broader market earnings underperformed, though they still remained strong, the brokerage said. Revenue and net profit grew 11% and 22% year-on-year, respectively, with margin expansion of 53 basis points in the fourth quarter.
Top Performing Sectors
Consumer discretionary sector reported the best earnings growth followed by communication services, according to Morgan Stanley. Materials sector performed the worst.
The top-line growth was positive across the board, with consumer discretionary and financials reporting the fastest growth, it said.
The brokerage also highlighted that the Ebitda margin expanded for six sectors.
Automobiles and PSU banks had the biggest earnings beats versus what the analysts at Morgan Stanley expected.
Sensex, Nifty Performance
The companies included in the Indian benchmarks, the Sensex and the Nifty, on an average reported revenue growth of 14% and 12% year-on-year in the fourth quarter ended March, in line with Morgan Stanley's expectations.
Net profit for Sensex and Nifty companies stood at 21% and 18%, respectively, beating analysts' expectations by 10 percentage points and 4 percentage points respectively, the brokerage said.
The broad market revenue and net profit growth was 11% and 22% year-on-year, respectively, with margin expansion of 53 basis points.
The Sensex-base companies is likely to grow at 18% in fiscal 2024, according to Morgan Stanley. This is 10 percentage points below the brokerage's top-down estimate of 29%, it said.
Consumer discretionary and technology sectors have been subject to the most positive and negative revisions in earnings growth estimates, said Morgan Stanley.
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