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Q4 earnings: Motilal Oswal expects 50% growth from financials; IT, oil and gas to contribute 30-40%

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Q4 earnings: Motilal Oswal expects 50% growth from financials; IT, oil and gas to contribute 30-40%

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In an interview with CNBC-TV18, Gautam Duggad, Head of Research - Institutional Equities, Motilal Oswal Financial Services, laid out the big themes to watch out for in the Q4 earnings season. He said that FY22 will end with 732 EPS on the Nifty, which is the highest growth since FY04. He remains positive on the earnings estimates despite margin headwinds. He shared that 50 percent of earnings growth will come from financials, whereas IT, oil and gas will contribute 30-40 percent.

In an interview with CNBC-TV18, Gautam Duggad, Head of Research - Institutional Equities, Motilal Oswal Financial Services, laid out the big themes to watch out for in the Q4 earnings season.

Duggad expects 20 percent earnings growth for Motilal’s coverage universe and roughly 23 percent for Nifty. He highlighted that 50 percent earnings growth will come from oil and gas, IT and financials. He said that FY22 will end with 732 EPS on the Nifty, which is the highest growth since FY04. He remains positive on the earnings estimates despite margin headwinds.
"We are expecting about 20 percent earnings growth for our coverage universe and roughly 23 percent for Nifty and this is coming on a very high base. When I talk about a 20 percent earnings growth for MOFSL coverage and 23 percent for Nifty, 50 percent of the growth or more than that will be coming from financials and another 30 to 40 percent of the growth will be coming from oil and gas and IT. So those three sectors actually account for 90 percent of the incremental growth," he said.
"Our forward earnings estimate revision is still very stable. If you recall, we started FY22 with an EPS projection of Rs 730, we are virtually going to end the year at Rs 732, which will be a growth of 35 percent for the full year. This is the highest growth that we'll be logging in, in almost 18 years. This is highest since FY04 if these numbers are met, and our next year's forecast is at about 19 percent for FY23. So virtually, no change in earnings estimate, despite all the headwinds that we've seen for the last seven, eight months," he added.
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On autos, he said that this is the fifth year of a downcycle for the sector. He mentioned that the space has seen 14 consecutive quarters of earnings downgrade. He added that there is no earnings visibility for autos despite the attractive valuations.
"The sector has underperformed for four-and-a-half years, this is the fifth year of a downcycle for autos. Earnings and volumes peaked in FY18 and we're yet to reach those levels. The problem in the sector in my view is that demand is an issue, supply is an issue and also at the margin, input cost has not been favorable. So we have now seen 14 consecutive quarters of earnings downgrades and my view is the next two quarters also, you will continue to see earnings downgrades," he said.
"I think in an environment where I'm expecting a 35 percent growth, which is already delivered in Nifty for FY22 and next year about 20 percent, earnings growth on the market is looking extremely strong. So it's not as if that there's a dearth of opportunities. So I want my capital to be deployed in sectors where earnings visibility is far stronger. Having said that, valuations are looking quite juicy, but the triggers are still not around (for autos)," Duggad explained.
Watch the video for the full interview.
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