How India Inc defied Ukraine war, rate hike woes to post strong Q4

NEW DELHI – The protracted war between Russia and Ukraine and the consequent surge in global commodity prices may have roiled equity markets worldwide over the last few months, but corporate India’s earnings in the last quarter displayed strength.

The rate hike plans outlined by central banks both at home and abroad to curb inflation have taken a toll on equity markets by dampening growth prospects and leading to tighter financial conditions.

So far in 2022, the Dow Jones Industrial Average has lost 9.7 per cent. Even as the fall in domestic equities has not been as steep as the US index – the Sensex has lost 5 per cent-– the period has been one of intense volatility in stock markets.


“Corporate earnings, a true barometer of economic health, on the other hand, have been quite resilient with Nifty EPS for Q4FY22 coming in on broadly expected lines at Rs 207/share, up 10 per cent QoQ and YoY,” ICICI Securities said.

According to the brokerage, the pressure on margins faced by manufacturing businesses along with wage inflation in the IT sector had been offset by the earnings outperformance shown by the banking, financial services and insurance (BFSI) sector.

In the fourth quarter of the previous financial year, the BFSI sector enjoyed better-than-expected credit growth and an improvement in asset quality, the brokerage said.

Across businesses, the management commentary in January-March was positive on the demand outlook in the midst of an improvement in economic activity, aggressive infrastructure spending outlay by the Centre and a revival in the private capex cycle.

ICICI Securities said in its note, however, that managements were wary of fresh escalation in input cost inflation, which could translate into broader price hikes and a slightly softer trajectory for margins.

Data released after trading hours on Tuesday showed that India’s GDP grew by 4.1 per cent in the fourth quarter of FY22.

According to economists from Nomura, while the moderation in GDP growth in the fourth quarter was primarily on account of a statistical base effect, the sequential momentum remained strong at 1.9 per cent quarter-on-quarter versus 2.0 per cent in October-December, suggesting an annualised momentum of 7.5 per cent.

“We believe the present market volatility offers an attractive opportunity to build a long-term portfolio of quality companies, which have lean balance sheets, are capital efficient and have growth longevity,” ICICI Securities said.

Taking into account revised estimates for firms’ profit after tax after the fourth quarter, the brokerage’s forward estimates do not undergo a major change.

Over a three-year horizon ending FY24, the brokerage sees Nifty earnings growing in excess of 20 per cent compounded annual growth rate while for the period from FY22 to FY24, the earnings CAGR is pegged around 14 per cent.

“Rolling over our valuations to FY24E and trimming our forward PE valuation multiples amid rising rate hike scenario we now value the Nifty at 18,700 i.e. 20x PE on FY24E EPS of Rs 935,” ICICI Securities said.

While single-digit downgrades were visible across most sectors they were offset by the upgrades in the index heavy BFSI domain, the brokerage said.

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