The aggregate revenue of Nifty50 soared 9% YoY to an impressive Rs 11.38 lakh crore, accompanied by a robust 20% YoY surge in profits to Rs 1.50 lakh crore. The underlying strength of the Indian economy was further underscored by 36 out of 50 companies reporting growth in revenues, and 40 companies recording increased profits.
The standout feature of this earnings season has been the expansion of margins by 694 basis points YoY, reaching a remarkable 30.14% for the quarter. This was propelled by the strategic benefit reaped from the decline in input costs.
Sectoral Standouts:
The banking sector exhibited an in-line performance in Q2FY24 driven by advances growth and consistent enhancements in asset quality. Nevertheless, the margin trajectory faced further compression, primarily due to an increase in funding costs. While retail and MSME sectors showed strong credit growth, the corporate book also witnessed an uptick.
Deposit growth, led by term deposits, resulted in a sustained decline in the CASA ratio. At an industry level, the credit-to-deposit ratio is at its highs, and therefore the banks who will be able to demonstrate a sustained increase in deposits would be at an advantage. Nevertheless, the Net Interest Margins (NIM) are expected to see a further decline for banks with a high floating rate. However, the overall outlook for banks remains positive, with mid-teen credit growth expected to persist, and medium-term asset quality remaining stable.
The auto sector witnessed a healthy performance, propelled by corrections in raw material prices and cost efficiencies. The key catalyst contributing to the sector’s success includes initial signs of revival in the 2-wheeler industry, an increase in economic activities bringing cheers to the commercial vehicles, and a surge in the sales volume of SUVs in the Passenger Vehicle mix. Focus on premiumization, new order wins, operating leverage, and favorable foreign exchange has been fruitful for the companies. The sector anticipates gradual improvement in exports, setting the stage for a strong show in the future.
Contrary to the usual weak seasonal trend, the Realty sector stole the limelight in Q2FY24. Real estate companies exhibited a remarkable recovery in property demand. Factors such as a rich product mix, new project launches, commodity tailwinds, and stability in interest rates drove the momentum. Encouraging sales figures are expected to continue, driven by increasing demand for branded developers, particularly in the premium housing segment.
The IT sector witnessed a dull September quarter with modest revenue and profit growth. Delays in discretionary spending and decision-making, the decline in attrition rates, and noteworthy deal wins were some of the key attributes of the quarter gone by. Certain pockets, especially midcap IT companies, performed well. Despite the challenges, the TCV remains strong which should propel the long-term positive view for the IT sector.
FMCG faced challenges in revenue growth due to rural stress and erratic monsoon, resulting in unstable demand. However, companies reported margin expansion due to a moderation in input prices, boosting overall profitability. The sector looks forward to volume-led growth and a recovery in rural demand to lift its performance in the coming quarters.
The pharma sector garnered enthusiasm with positive market sentiment, while the metals sector weighed down the earnings performance, facing headwinds.
The resilient performance of Nifty50 in Q2FY24 is not just a reflection of the past but a promising indicator for the future trajectory of the Indian economy. Green shoots indicate that the strong demand environment is here to stay, thanks to the revival in the investment cycle and increasing capacity utilization.
Therefore, domestic-oriented themes are set to dominate our country. The positive outlook for sectors such as banking, automobiles, cement, capital goods/EPC, and pharmaceuticals positions India Inc. for sustained growth in the coming years.
Technical Outlook
Nifty50 closed robustly at 19,732, posting a 1.06% gain in the week. Meanwhile, the Nifty500 also soared by 2%, showcasing the collective strengthening of midcap and small-cap segments. Also, in Nifty50 constituents, Eicher Motors emerged as the top gainer, up 9% while Axis Bank dragged by 3.55%.
Technically, a daily chart breakout from the downward trendline and sustained positions above key moving averages (20 and 50 DMA) signify bullish momentum. RSI at 60 indicates a balanced market. Weekly volume profiles establish 19,400 as robust support and 20,050 as significant resistance.
The index has multiple resistance around the 19,850 levels and chances of a further up move will depend on the option activity at the maximum call open interest strike of 19,800.
We anticipate that Nifty IT, Auto, and Pharma will continue performing well, as demonstrated by the strength of their respective indices.
Throughout the week, the Nifty50 consistently opened with notable gaps, and challenges for traders, necessitating a prudent hedging strategy for overnight positions.