3Q Earnings Preview & Market Outlook

19 Jan 2022

India Inc Q3 earnings season has begun. Citi analysts expect a ~24% YoY growth for Citi Universe earnings in 3Q led by Commodities and Financials. With a sluggish recovery and Omicron uncertainty, the GDP forecast has been revised downwards with FY22E real GDP growth revised to 9.0%YY from 9.8% earlier. Key Details appended below:

• 1. 3Q Earnings: Earnings are expected to be flattish ex-fin & commodities (excluding couple of volatile names). Citi analysts expect margin pressures across most sectors on account of input cost pressures (consumer, auto and Industrials) and wage hikes (IT).
Source:Company Reports and Citi Research Estimates, Bloomberg Consensus Estimate


• 2. Market Outlook & Valuations: Citi analysts expect uneven demand recovery in 3QFY22, with the ongoing spread of omicron variant adding to uncertainty. Absolute valuations are at >1sd above 5 year mean and relative to EM valuations are at 2sd above 5-year mean. Given FY22E/23E EPS growth expectation of 40%/18% (above pre-pandemic earnings growth trajectory) - the risks are to the downside.
Source: Company Reports and Citi Research Estimates, Bloomberg Consensus Estimate


• 3. GDP Forecast: Citi analysts have made downward revision to the GDP forecast mainly driven by weaker 3QFY22. The FY22E real GDP growth has been revised to 9.0%YY from 9.8% earlier and FY23E real GDP growth forecast to 8.3%YY (vs. 8.7% earlier). The revised GDP forecast alludes to the fact that the that output gap is unlikely to close even in FY23E.
• 4. Sectoral Outlook: Citi analysts Expect margin pressures across most sectors owing to input cost pressures (consumer, auto and Industrials) & wage hikes (IT). They remain OW on Banks, Industrials, Real estate and UW on Materials and Consumers.
Source: Company Reports and Citi Research Estimates

Summary: Markets are factoring in continued strong earnings momentum & elevated absolute/relative valuations. Citi analysts suggest watching out for the upcoming budget, state elections, RBI's stance, and global cues (USD, Fed commentaries).

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