Margins To Expand Across Sectors In Q2 Earnings, Says Motilal Oswal's Gautam Duggad

The second-quarter earnings are expected to be healthy, with very strong margin expansion on a year-on-year basis, according to Motilal Oswal’s Gautam Duggad. 

“We are expecting a 21% earnings growth for Nifty, and 15% growth excluding oil marketing companies… This is a quarter where margin expansion will be very strong across sectors,” Duggad, head of research-institutional equities at Motilal Oswal Financial Services Ltd., told BQ Prime’s Sajeet Manghat in an interview. He expects a "very sharp upswing" in the profit of oil refiners and retailers over a year earlier.

Margin expansion will be robust in sectors such as auto, cement, consumer metals, and oil & gas, he said. “We are expecting close to 250-300 basis points of margin expansion at the operating level.”

According to him, while there will be an 8% to 9% top-line growth for the Nifty, Ebitda growth will be in the range of 17% to 18%. Earnings will grow by 20% to 40% for the second quarter, he said, attributing the spike largely to the OMCs. 

Sectors such as financials, auto, and oil and gas, that have been strong in the previous quarters, are expected to post robust numbers in Q2 as well, he said. Additionally, on an extremely low base, cement companies will post about 70% growth this quarter, according to Duggad. 

In the banking and financial sector, the moderation in the net interest margin will continue this quarter, he said. “The earnings growth will moderate from 30% to 35% this quarter, and will fall to 10% to 12% in the fourth quarter.”

Growth will look solid for the full year, but is very non-linear on a quarterly basis, Duggad said.

With just about 6% to 7% earnings growth YoY, the information technology sector will show muted second quarter performance, said Duggad. 

“IT is going through a bit of a rough patch, because of the global growth narrative and also the interest rate movement.” Since October 2021, most of the IT stocks have been down by 20% to 30% from their respective two-year highs, while the market is at a new high, Duggad said. 

As far as the fundamentals of the IT companies are concerned, their sequential constant currency revenue growth will stay muted for a couple of quarters, according to Duggad. The global macro is still not very positive, and the recent commentary from Accenture Plc. highlighted the same, he said. 

The markets have been very mature and will not witness much of an impact at this stage, according to him. The Israel-Palestine crisis is not new, but the scale of conflict and extent of damage is very different this time, Duggad said.  

“Even in the past, these conflicts created a downward momentum for a few days. But, after a week or so, people will move on to the next news,” Duggad said. In another three or four days, markets will start talking about earnings and other fundamental factors, he said. 

As the commodities involved are different and with world opinion towards one side, it is too early to comment on the impact it will have on the supply chain, he said.