After a robust year, the Indian markets would start the new year kicking off the earnings season. With the initial results coming in, the market has already begun to see some correction, but is that the direction the market is headed?

We sat down with Chola Securities’ head of equity research Dharmesh Kant to understand what one can expect from the December quarter earnings and how the market could react to it.

Q3 Overview

“I think Q3 earnings would still be good. Q2 was around 30% earnings growth. Broadly speaking, we are expecting the same for Q3 as well.,” said Kant about his expectations from the earnings.

“The numbers for October and November were very good. So that is likely to push up the earnings for Q3. So on a quarterly basis, I don’t think there would be any disappointments,” he added.

Talking about the market’s outlook for 2024, Kant said that the Nifty could breach the 24,000 mark before the year ends. “I will just talk you through the EPS (earnings per share) number. Nifty 50 EPS expectation is around 1,020, 1,050 for FY24. And even if you take, say, 10-11% kind of growth for FY25, it’s around 1200. So 1200 at 20 multiple is 24,000. We are expecting 24,000 this year. Whether it happens after the election or before the election or in a run-up after budget that remains to be seen” 

Sectors To Watch Out For

When asked about what sectors should people be looking out for, Kant said that the only surprises could mainly come from the IT Sector.

“The expectation is again a degrowth in constant currency on a sequential basis for IT companies. The estimate is around 0.5% to 1%, kind of a degrowth this quarter. Any surprise out there would be a big positive for the market.”

He added that despite the degrowth there is some positive guidance that could soothe market sentiments. “To my mind, even if there is a degrowth, is not very important. What’s important is their commentary but it’s very difficult to predict what kind of commentary they will come out with because last seven, eight quarters, if you look at their commentaries, every time it was divergent.”

Another sector that has been grabbing a lot of investor attention is the auto sector. Talking about the sector Kant said, “The problem with the auto sector now is that it’s priced to perfection. So Q3 earnings there won’t be any problem. But going by the December numbers it looks like sales are peaking out and if you compare the number of vehicles sold with that of the 18-19 financial year they have surpassed that in most of the categories and it’s a premium segment that has been catching up faster than the mass segment. So the main traction is coming in the premium segment, be it cars or two-wheelers.” 

He adds that due to this, he does not see the auto companies’ shares continuing the same bull momentum in 2024. As per Kant, the valuations have gone up quite sharply and it will be a while before the financials finally catch up.

However, he said that if exports pick up, then the auto sector could see some more rise in share price. If export picks up companies like Bajaj Auto, TVS Motor could stand to gain more, he added.

Losers And Gainers

• Metals: Kant expects the metal production companies to report strong volume growth and margin improvements. “They would be reporting good volume growth as well as the margin improvement as input prices have not gone up so drastically and they were able to pass on whatever price increase was there”
• Pharma: According to Kant, the pharmaceutical sector is likely to experience moderate growth of around 10-15%, and he notes that the sector is “priced to perfection.”
• Chemicals: For the chemicals sector, Kant said that the challenges will continue. He said that though stock prices have gone up “but on ground volume offtake has not been there. Europe demand is still sluggish, there was a hope in October that things are picking up, but it has not picked up. So the chemical sector at best will do Q2 numbers or slightly lower than that on a sequential basis”
• Capital Goods: The capital goods sector is likely to perform well, supported by strong order inflows and growth in the power sector.
• Cement: As per Kant, the sector might see muted top-line growth due to external factors such as unseasonal rainfall. However, improvements in EBITDA per ton are expected to sustain profitability.
• Infrastructure: This sector remains a bright spot, with consistent performance expected, especially in railway infrastructure. “Railway infra will do particularly well because there are a lot of things that are happening and the execution has been on a very fast track basis,” Kant said.
• Realty: Shares of the real estate developers have been on a string bull run and Kant expects it to continue. He adds that there is another 30% to 40% upside remaining. Talking about the demand outlook for the sector he said, “Level of income has been rising and the last three, four years have been very good for most of the Indian households where, I mean, both partners are working, their savings have gone up. So I do think this demand is likely to continue. “

The Upcoming Budget

The country’s budget is always a major event for the markets. So we asked Kant, how he thinks this year’s budget would impact the different sectors.

Kant thinks that the upcoming interim budget might be a non-event. “The tax collection and everything is working out very well for the government, so there’s no point doing something out of the ordinary. The railway is one space which will continue to attract traction in the interim budget allocation, infra allocation would also be there.”

Apart from this, Kant believes that the government could announce some populist measures like tax cuts. He adds that although corporate taxes have been lowered, the government has not implemented similar measures for individual taxpayers.

The IPO Frenzy

The IPO market made a comeback in 2023 after a quiet 2022. Kant believes that the IPO frenzy will continue.

“With the type of returns the last few IPOs have generated, the IPO frenzy looks good to continue. Everything is up 40% to 50% on the listing day itself, o such kind of a movement does create a frenzy and retail participation increases significantly.”

He added that several good IPOs are coming, but since there is a frenzy, almost every IPO will perform well in the near term, so one has to be cautious about picking out the good ones.

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