India Inc Q1 results review: Which stocks and sectors to buy amid the volatility

Bears have suddenly attacked Dalal Street as the results season for the June 2023 quarter comes to an end. The Nifty50 Index, which was hovering around 20,000-mark about a month ago, has corrected almost 3 per cent. BSE's Sensex also slipped below 65,000-levels in the trading session on Friday.

June 2023 quarter turned out to be a mixed quarter for India Inc as majority companies have reported in-line results for the June 2023 quarter, barring a few exceptions. A few companies surpassed analysts' estimates, while a couple of them have failed to live up to the numerical expectations.

However, broader markets have been dominating the party, despite an overall contraction of revenue, thanks to rise in profit growth and improved margins. Weak global cues, concerns over economic health, inflationary worries, High rates, slowing global economy, risks broadening the slowdown, and FIIs selling triggered by weaker rupee may dent the sentiments at Dalal Street.
 
The BSE500 topline slowed to 6 per cent with nearly 30 per cent of them posting topline contraction, which usually happens during crises. The slowdown is more pronounced in global oriented sectors followed by low ticket consumption, while high end consumption and capex seem to be doing well, said Nuvama Institutional Equities.

"Nifty earnings were stable. FY24E EPS growth remains unchanged at 15-16 per cent. This is essentially premised on top line and margins holding up. We see risks to the same and maintain that earnings downgrade risks are likely," it said. "FY23 was a purple patch in banking history with improving NIMs, rising credit growth and lower credit costs. However, in Q1FY24, NIMs contracted."

In the last one-month, broader markets have gained up 5 per cent, while defensives like pharma have gained on the similar line. State-run counters and media, utilities and infrastructure stocks have gained up to 9 per cent. However, heavyweights like IT, banking and financials have disappointed, falling up to 6 per cent in the last one month.

Q1FY24 corporate earnings were in line with performance of heavyweights, such as Tata Motors, BPCL, HDFC Bank, ICICI Bank and Axis Bank, driving the aggregate. However, growth has been led only by BFSI and Auto, while the oil & gas sector reported a 2.6 times surge in profit YoY, underpinned by the improvement in marketing margins of OMCs, said Motilal Oswal Financial Services.

"We largely maintain our sectoral allocations and weights and continue to rely on the sector winners with growth visibility driving our stock selection framework. We remain overweight on financials, consumption and automobiles, and are underweight on metals, energy, and utilities and neutral on healthcare and telecom in our model portfolio," it added.

"Weak exports and rising domestic real rates could broaden earnings downgrades. The recent rally has rendered valuations expensive to both peers as well as interest rates backdrop– implying growth concerns are not priced in. We remain cautious," Nuvama said. It is overweight on defensives, FMCG, pharma, cement, autos, IT, Telecom, internet and underweight on BFSI, industrials, metals.
 

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From the large-cap space, Motilal Oswal has picked ICICI Bank, ITC, L&T, Mahindra & Mahindra, HCL Technologie, Ultratech, Avenue Supermarts, Titan, and Zomato, while it likes Mahindra & Mahindra Financial Services, Ashok Leyland, Metro Brands, Indian Hotels, and Godrej Properties from the midcap and smallcap space.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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