3Q Earnings Preview: Weak Growth; Mild Margin Recovery

16 Jan 2023

Citi analysts expect overall 3Q earnings growth of 6% YoY. Earnings in commodity sectors are expected to be low, however this should be offset by strong financial sector growth. Given softening input prices, Citi analysts expect an improvement in gross margin, however the impact on EBDITA margin will be lower on account of weak growth and higher operational expenses. Earnings revision risks are skewed to the downside, and the valuations remain relatively high (now at a 5-year average on an absolute basis). Citi analysts keep our Dec’23 Nifty target at 18,300.

• Earnings and valuations: NIFTY FY 23/24E estimates have witnessed downward revision in 2HCY22 . At 12%/12% (Citi/consensus) for FY 23 and 14%/17% (Citi/consensus) for FY 24, we see earnings revision risk skewed to the downside. Nifty is trading at its 5-year average. The recent EM-Asian outperformance has moderately lowered India’s relative premium to EM.






• Sectoral Stance: Key overweight sectors are banks, PSU utilities and capital goods, and key underweight sectors are discretionary and IT services. Citi analyst are neutral staples and metals.

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