India Inc expected to witness modest growth in Q4Y23

With the third quarter of Q3FY23 having produced moderate growth numbers for Indian companies, the fourth quarter (Q4FY23) is expected to show similar growth pressures. The Nifty-50 listed companies are estimated to witness 9% yoy growth in net profits and 8% sequential growth in Q4FY23. A major driving factor for improved quarterly performance is the softening of raw material prices, which will help companies improve their operating margins and EBITDA. 

If you compare that to Q3FY23, the revenue growth was relatively strong at 17.5% yoy. However, net profit growth came in at just about 5% yoy due to the contraction in operating margins by 150 bps. To that extent, the profit growth in Q4FY23 is likely to get a boost. On the revenue indicators, there have been several positives. GST collections have been averaging nearly Rs1.50 trillion per month during FY23 so far. The PMI manufacturing and PMI services have been consistently robust. Above all, contact-intensive parameters like air traffic, hotel occupancy and tourism growth have been fairly robust.

How the Banking sector is likely to perform in Q4FY23

Banks are likely to continue gain from the lag effect; of loan yields growing faster than cost of deposits. The banking sector is expected to show growth in credit of 15.7% yoy, led by retail loans and the corporate lending sector. Banking sector is likely to get a boost from a pick-up in the capital investment cycle, Housing demand as well as the demand for automobiles and consumer loans. The sales of automobiles in the domestic market are also expected to be robust and will drive a lot of lending demand. This will be aided by pre-buying ahead of the BSVI Phase II. For now, there seems to be no obvious factor that could shift the growth paradigm. 

What about the metals sector in Q4FY23?

This sector is expected to face pressure on the pricing front and higher input costs. However, there is likely to be a smarter recovery in demand for this sector. However, some tailwinds are expected from demand picking up in China. Overall, the net profits of the metal sector overall are expected to grow by 6.5% yoy and 17% on a sequential basis.

How is the IT sector expected to perform?

While the banking crisis in the US is likely to impact IT companies, the impact on Q4 numbers is likely to be limited. Despite that, the March quarter is likely to see tepid revenue growth with new deal wins taking longer than normal. Also, the high BFSI exposure of TCS, Infosys and Wipro could put pressure on guidance. There are operating marginal improvements expected in Q4FY23 for IT companies due to easing supply pressures and cooling of attrition.

What about capital goods in Q4FY23?

Capital goods players will greatly benefit from a revival in the capital investment cycle, moderations in commodity prices and fast-filling order books. Capital goods companies are expected to report strong revenue growth and enhanced gross margins, with most beating estimates.