Q3FY24 Performance Review

Domestic indices have recently surged to all-time high levels, thanks to investor optimism, with robust Quarterly Results playing a significant role. As we navigate through the December-ending quarter results, Mandar Wagh analyses company performances sector-wise to offer deeper insights into the future outlooks of various sectors, considering growth triggers, risk factors and the potential effects of recent budget announcements 

The financial year 2023-24 till date has proven to be exceptional for the markets, marked by a robust rally in indices that propelled them to reach all-time high levels. During Q1FY24, the benchmark indices, BSE Sensex and Nifty 50, experienced around 10 per cent gain, reaching record all-time highs. This surge was fuelled by strong quarter results, effective management of the El Nino event, positive developments such as the increase in industrial output, a pause in interest rate hikes, and substantial FII inflows attributed to India’s robust economic outlook among developing countries, among other factors. [EasyDNNnews:PaidContentStart]

In Q2FY24, there was a significant correction following a robust rally, primarily driven by foreign investors booking profits. The banking sector faced the brunt of the damage, and due to a lack of investor optimism, the indices registered marginal gains of 1-2 per cent during the period. The period of Q3FY24 experienced another strong rally, powered by revised growth projections, a remarkable surge in IT stocks following the Federal Reserve’s dovish stance on interest rate hikes, and a favourable remark by the Supreme Court regarding the Adani Group. 

The Supreme Court order enhanced investors’ risk appetite, leading to a robust rally in Adani Group stocks. As a result, the indices broke previous records and reached new highs. The broader indices, namely BSE Mid-Cap index and BSE Small- Cap index, meanwhile, sustained an unbroken robust uptrend, registering a rally of 45-50 per cent over the past nine months and demonstrating resilience in each quarter. 

The primary market exhibited notable resilience, as evidenced by several IPOs simultaneously entering the markets and still garnering outstanding subscription levels. Many IPOs, such as Indian Renewable Energy Development Agency (IREDA), Tata Technologies, Motisons Jewellers, Plaza Wires, etc, achieved multibagger returns. Against this robust primary and secondary market, let’s analyse the Q3FY24 results of companies sector-wise to gain additional insights into the future outlooks of various sectors, while taking into account growth triggers, risk factors, and any effects of the recent budgetary announcements.
 

Banks 

Around 90 per cent of the banks have disclosed their Q3FY24 financial results, consistently spearheading sectoral gains without any instances of negative growth being reported. The industry has witnessed an impressive 32 per cent year-on-year top-line growth, accompanied by a remarkable 27 per cent rise in net profit. HDFC Bank witnessed the most substantial year-on-year growth in interest income, with a remarkable growth of 73 per cent, reaching ₹78,008 crore compared to ₹45,002 crore in the corresponding period last year. 

Meanwhile, Yes Bank, Punjab National Bank and South Indian Bank experienced significant leaps in net profit. In response to robust demand from various sectors, banks have effectively diversified their loan portfolios, strategically distributing lending activities across a spectrum of industries to mitigate concentration risk. The majority of banks achieved impressive interest income figures, attributed to the strong expansion of their loan portfolios, especially in higher-yielding assets like personal loans, mortgages and commercial loans. 

In a strategic move, banks leveraged the upswing in interest rates, responding to the heightened repo rate by increasing the interest rates on diverse loan portfolios, encompassing home loans, personal loans and car loans. Skilfully aligning their lending rates to outpace adjustments in deposit rates, banks orchestrated a slight contraction of the net interest margin (NIM) against expectation of large contraction. Simultaneously, the incorporation of advanced technologies, including artificial intelligence and machine learning, has played a crucial role in improving risk assessment and management. 

This integration has empowered banks to make more accurate predictions of potential risks and optimise credit decisions. Consequently, it has played a crucial role in helping banks enhance asset quality and reduce their non-performing assets (NPAs). Conversely, the increase in credit card lending has led to a rise in payment defaults, especially notable in serious delinquency rates for both credit cards and consumer durables. RBI Governor Shaktikanta Das has underscored the need for vigilant monitoring of personal loans, cautioning banks to strengthen their risk management systems in response to potential emerging stress. 

The central bank chose to uphold a steadfast approach by keeping rates unchanged in the subsequent policy reviews throughout 2023. Given the expert forecasts indicating potential interest rate cuts by the RBI in the coming quarters, a reduction in lending rates may pose a challenge to the banks’ profit margins, thereby influencing their overall profitability. Nevertheless, the lower rates can stimulate borrowing and increase demand for loans, thereby providing support to the sector.
 

Financial Services 

While nearly 75 per cent of the listed financial services companies are yet to disclose their results, the announced ones have been remarkably impressive, contributing to an overall sense of optimism extending from the banking sector to the broader financial services industry. While the majority of companies reported substantial doubledigit growth, the overall sector has registered a 28 per cent year-on-year revenue increase. Notably, Jio Financial Services Ltd., Cholamandalam Investment & Finance and IREDA Ltd. emerged as significant contributors to this robust revenue growth. 

The operating profit also experienced a 29 per cent growth. However, there was a decline of around 32 per cent in net profit, primarily attributed to losses incurred by industry leaders in market capitalisation, namely Mahindra and Mahindra Financial Services Ltd. and Piramal Enterprises Ltd. Excluding these setbacks, the overall performance was impressive. On the flip side, other financial services sectors, primarily encompassing capital market companies, investment and brokerage houses and ratings firms, exhibited greater resilience, with a remarkable 33 per cent year-on-year revenue growth and an impressive 62 per cent rise in net profit. 

Enhanced economic conditions, rising financial literacy among investors, and advancements in technology facilitating quicker and more efficient trading have collectively contributed to the enhanced financial performance of the capital markets, brokerages and rating firms. The government is proactively driving inclusive development for micro, small and medium enterprises (MSMEs) through financial assistance, with a primary emphasis on ensuring easy access to loans to empower the economically weaker sections of society. This initiative has contributed to the growth of lending institutions and NBFCs. The optimistic outlook for the future is bolstered by the government’s unwavering commitment, as reflected in the recent budget.
 

Information Technology

The Indian information technology sector, reflecting the global downturn in IT, sustained a lacklustre performance. The industry experienced a marginal 3 per cent year-on-year revenue growth while recording a 1.5 per cent aggregate decline in net profit. A noticeable trend surfaced wherein industry leaders, despite aligning revenue figures with those of the same quarter last year, struggled to improve profitability. Conversely, smaller companies and those involved in artificial intelligence operations took the lead in terms of profits. 

Atishay Ltd., MosChip Technologies Ltd., Birlasoft Ltd. and Onward Technologies Ltd. garnered investor attention due to their resilient performance. Contrastingly, prominent entities such as Tech Mahindra Ltd., Wipro Ltd., Infosys Ltd. and Mphasis Ltd. faced considerable challenges, impacting their overall performance. The global IT industry is facing challenges, including macroeconomic uncertainties, recession concerns, and reduced spending, particularly in the U.S. With a significant portion of revenue coming from the U.S., the Indian IT industry is also grappling with layoffs, reduced bonuses and limited pay hikes due to decreased demand.

Relying heavily on a few major clients poses risks as the potential loss or reduced demand from key clients can significantly impact revenue streams. As domestic IT companies are collaborating with global leaders, the rapid pace of technological advancement requires continuous investment in research, training and development. In the competitive landscape, companies must strive for a competitive edge to stay relevant, especially in the face of established AI platforms. 
 

Real Estate 

The real estate industry experienced an unbroken upswing and displayed remarkable resilience that had been absent for many years. This optimistic outlook was similarly reflected in the Q3FY24 results. While the performance of certain real estate companies was mixed, with some experiencing a decline in revenue or profits, it’s noteworthy that the downturn was limited to one or two digits. This decline was considerably lower compared to the exceptional three-digit growth demonstrated by the other companies. Overall, the sector achieved a year-on-year revenue growth of 29 per cent, along with operating profit and net profit growth of 90 per cent and 110 per cent, respectively. 

Swan Energy Ltd., National Standard (India) Ltd. and Macrotech Developers Ltd. emerged as noteworthy contributors to robust revenue growth in the real estate sector. Simultaneously, Swan Energy Ltd., D B Realty Ltd. and National Standard (India) Ltd. garnered attention from real estate investors due to their substantial profitability figures. The impressive expansion of the sector is driven by a high demand scenario, with real estate developers witnessing unparalleled presales and launching new projects aimed at enhancing presale numbers. Furthermore, residential property rentals in 13 major Indian cities experienced a notable 22 per cent surge compared to the preceding year, with millennials playing a pivotal role in propelling this exceptional demand. 

Real estate stocks associated with companies reporting favourable quarters have attracted considerable buying interest, earning recognition as top choices for 2024 by leading brokerage houses. This endorsement is attributed to their record-breaking presales, resilient profitability, robust launch pipeline, and the prevailing optimism surrounding the sector. Finance Minister Nirmala Sitharaman announced an increased allocation of ₹80,670.75 crore for the government’s flagship PM Awas Yojana in the interim Union Budget 2024. The government’s commitment to addressing housing challenges and constructing 2 crore additional homes under the scheme is a positive move for bolstering the housing sector.
 

Chemicals

Previously, the China Plus One strategy gained prominence, wherein companies diversified their operations beyond China to other countries. The disruption of supply chains due to the corona virus pandemic further weakened China’s dominance in the chemical industry. In this scenario, India found itself in a favourable position to increase its market share. Leveraging its technical expertise and potential, India could offer cost-competitive manufacturing to global markets. Amid these developments, China, with its capacity for excessive chemical production, adopted a dumping strategy. This involved exporting goods at a price lower than their market value in the country of origin. 

The availability of these discounted goods adversely affected local manufacturing, intensifying competition and making it challenging to compete both domestically and globally. Domestic chemical manufacturing companies, already grappling with challenges stemming from volatile raw material prices, experienced a substantial setback. The trend persisted into Q3FY24, with a significant number of chemical companies reporting a noteworthy downturn in both revenue and net profit. The sector as a whole experienced a year-on-year decline of 6 per cent in revenue and approximately 12 per cent in net profit. Fine Organic Industries Ltd. and Clean Science and Technology Ltd. stood out as significant contributors to the decline in revenue.

SRF Ltd., Aether Industries Ltd. and Atul Auto Ltd. reported notable reductions in net profit. Indeed, in a surprising turn of events, industry leaders Pidilite Industries Ltd. and Himadri Speciality Chemicals Ltd. showcased remarkable resilience in the challenging environment by reporting impressive year-onyear net profit growth, each exceeding 65 per cent. Despite an improvement in the financial performance of chemical companies compared to the last few quarters, it is anticipated that these companies will require several more quarters to fully recover and strengthen profitability. The situation is expected to improve following the cessation of China’s chemical dumping practices.
 

Iron and Steel

The Q3FY24 results of the iron and steel industry have been impressive, with a significant number of companies showcasing noteworthy expansion. While the year-onyear revenue grew modestly by 3-4 per cent, the operating profit surged 54 per cent, and numerous companies recorded substantial triple-digit growth in net profit. Lloyds Metals and Energy Ltd. and Jindal Stainless Steel Ltd. took the lead in terms of revenue growth. Industry leaders such as Tata Steel Ltd., JSW Steel Ltd. and Jindal Steel and Power Ltd., despite experiencing lacklustre revenue growth, managed to report three-digit profit growth. 

Considering the challenge of revenue growth, the industry has several growth drivers ahead that have the potential to uplift the sector. The ‘Make in India’ initiative has been a significant contributor to the growth of the sector. In the last year, the Union Budget 2023-24 placed a strong emphasis on infrastructural development, predicting that it would benefit the metals sector, particularly iron and steel companies, in the long run. In the recent budget, the government continued its steadfast commitment to focus on infrastructure. 

It proposed a substantial 11.1 per cent rise in capital expenditure to ₹11.11 lakh crore. The government made significant announcements, including the upcoming conversion of 40,000 railway bogies to Vande Bharat standards, plans to construct 2 crore houses, the goal to double the number of airports, and the procurement of 1,000 new aircraft, among others. Considering the extensive use of metals in all these industries, optimism in the sector has been boosted.
 

Power and Energy

The primary focus in recent times, particularly in budget announcements, has been on power, renewable energy, and notably, solar energy. The government has declared its intention to empower one crore households to receive up to 300 units of free electricity monthly through the rooftop solar programme. It has also emphasised the programme’s diverse advantages, including household savings, selling excess electricity to distribution companies, and new employment opportunities. The government is concentrating on various initiatives to attain the Net Zero target. 

Significant endeavours encompass providing VGF for offshore wind energy, advancing coal gasification, expanding the electric vehicle (EV) ecosystem, and launching a new scheme for bio-manufacturing. Furthermore, the rapid growth in the potential of solar and wind energy, along with the ongoing electric vehicle transformation, is evident. The government had previously announced the ‘Pradhan Mantri Sahaj Bijli Har Ghar Yojana’ with the aim of achieving universal household electrification across the country. The initiative focuses on providing last-mile connectivity and electricity connections to all unconnected households in both rural and urban areas. 

These initiatives, coupled with the government’s priorities, hold the potential to enhance the sector in the long term. Consequently, heightened optimism surrounding the industry has enabled power companies to sustain resilience. Most power companies exhibited positive performances in Q3FY24, with the industry reporting a year-on-year revenue and EBITDA growth of 11 per cent and 21 per cent, respectively. Adani Power Ltd., Adani Green Energy Ltd. and Adani Energy Solutions Ltd. stood out as notable top performers.
 

Pharmaceuticals

The Indian pharmaceutical industry has experienced significant growth as anticipated. The industry achieved an impressive year-on-year revenue increase of nearly 10 per cent, accompanied by a substantial 22 per cent rise in the overall net profit. Mankind Pharma Ltd., Piramal Pharma Ltd. and Ajanta Pharma Ltd. saw a substantial rise in their revenues. The recent spotlight on U.S. drug shortages has presented India’s pharmaceutical industry with a unique opportunity to leverage its competitive advantages and bolster its sustainable outlook on the global stage. 

With its prowess in generic drug production, cost-effective manufacturing, and a burgeoning role in healthcare services, India’s pharmaceutical industry is poised for a bright future. The pharmaceutical and healthcare sectors are undergoing a technological transformation, driven by the effective utilisation of artificial intelligence, machine learning, big data and advanced analytics, digital therapeutics, blockchain technology, nanotechnology, bio-printing and telecare, among other innovations. This rapid technological shift has not only proven instrumental in maintaining productivity levels but has also greatly enhanced efficiency, raised quality standards, and facilitated effective cost control measures. 

In the recent interim budget, the Ministry of Health and Family Welfare has been allocated ₹90,658.63 crore, reflecting a 12.5 per cent rise compared to the revised budget estimates of the 2023-24 budget. In addition, the government has prioritised public health by endorsing the vaccination of girls aged 9-14 against cervical cancer. This initiative, emphasising awareness, early HPV screening and vaccination, aims to empower females, improve reproductive health, and guard against the repercussions of cervical cancer.

Conclusion 

The Indian economy currently stands in a position where our robust economic outlook, coupled with the goals of fiscal consolidation, inclusive growth, social empowerment and the aspiration to achieve self-reliance and ‘Viksit Bharat’, is drawing the attention of global investors for investment and fostering collaborations with domestic companies by global leaders. This scenario is ultimately manifested in investor optimism that extends across the broader markets and various industries. 

While banks, financial services, real estate, power, pharmaceuticals and healthcare industries have demonstrated resilience, information technology, textiles and chemicals industries are grappling with sector-specific challenges, akin to those faced by global companies. With recent budget announcements, the government has given a notable boost to sectors such as power, renewable energy, infrastructure, housing, logistics and healthcare. It will be intriguing to observe what the full budget, post-elections, has in store for other sectors. 

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