4Q Earnings Preview: Financials to Drive Growth; Margin Pressures Mount

12 April 2022

India Inc is set to declare the March 2022 Quarterly earnings over the next few weeks. These financial results for the March ending quarter occurred amid a time of unprecedented global volatility, persistent inflationary pressures, continued supply chain disruption and a Hawkish Fed.Citi analysts expect Citi Universe 4Q earnings growth at ~12% YoY, largely driven by financials (lower credit costs). Ex-financials they expect flattish earnings YoY. Margin pressures are evident everywhere with sectors like autos, pharma, and IT to be impacted the most.

Key Points Appended Below:

• 1. FY23E Outlook: FY23 and FY24E earnings growth is estimated at 18%/13% following a strong performance of 26% and35% growth in FY21 and 22E. These estimates look optimistic given the inflation pressures and mixed growth trends and are accounting for a bounce back in auto (22%) & continued momentum in Financials (45%). Auto margins are likely to be under pressure although greater impact likely in 1Q from raw material/freight costs. While focus remains on the margins Financials are expected to drive growth.



• 2. Valuations: Indian Markets are expensive at 20x 1yr forward PE on NIFTY (relative to EM and earnings bond yield gap are near record high). Valuations relative to US are at LTA.Citi analysts retain the Nifty Dec 22 Target at 17,500 and see limited upside. The Citi India Sentiment Indicator is at ~0 (Neutral) which is consistent with 5-7% 1yr forward returns.



• 3. Model Portfolio: Citi analysts are OW on financials and industrials while lowering their expectations from Consumer Staples and Materials.

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