This sector is set to dominate Q1 earnings for all the wrong reasons

As the June quarter earnings season kicks off today, one sector is likely to dominate the headlines—for the wrong reasons.

Losses at oil marketing companies (OMCs) are expected to drag India Inc’s aggregate earnings in Q1, offsetting the likely strong profit growth in the financials, telecom and metals sectors.

Motilal Oswal Financial Services (MOFSL) expects profit after tax (PAT) across its coverage universe to decline 3% YoY, marking the weakest quarterly earnings performance since September 2020. In contrast, Nifty companies are expected to fare better, with earnings projected to grow 10% YoY, reflecting differences in sector composition.


Excluding OMCs, earnings growth is projected at 14%, indicating that the drag on overall profits is largely coming from one sector.

Oil & Gas set for weakest quarter

The brokerage expects the oil & gas sector to report a 94% YoY decline in profits, the steepest among all sectors under its coverage. OMCs have been the biggest drag within the oil & gas space due to the West Asia conflict and are projected to post a combined loss of Rs 36,400 crore for the quarter gone by amid elevated crude prices.

At the company level, Japanese brokerage Nomura expects HPCL, BPCL & IOCL to report EBITDA losses of Rs 13,900 crore, Rs 15,800 crore and Rs 17,300 crore, respectively, in Q1, citing significant losses on the retail sale of petrol, diesel and LPG as the companies were unable to pass on higher crude prices burden to consumers. The brokerage added that stronger gross refining margins are likely to have partly offset the marketing losses during the quarter.

Beyond OMCs, cement companies are also expected to report a 13% decline in profits, while the auto, healthcare and media sectors are projected to post a 3% decline each.

Telecom leads the winners

At the other end of the spectrum, the telecom sector is expected to deliver the strongest earnings growth for the June quarter, with profits projected to rise 3.3 times YoY.

The improvement is likely to be led by Bharti Airtel, aided by lower losses at Vodafone Idea.

Other sectors expected to report strong profit growth include:

• Building Materials: +36%
• Metals: +31%
• EMS: +29%
• NBFC-Lending: +27%
• Retail: +27%
• Consumer Durables: +27%

Financials set to anchor earnings growth

Financials are expected to remain among key contributors to Q1 earnings, with strong profit expansion across banks & NBFCs.

Motilal Oswal expects NBFC-lending companies to post 27% YoY earnings growth, while private and PSU banks are likely to report 10% and 9% YoY growth, respectively.

The sector is expected to offset weakness in cyclical segments, particularly oil & gas, and remain the largest contributor to overall market earnings during the quarter.

Excluding financials, earnings across the MOFSL universe are expected to decline 12% YoY, highlighting the sector's importance in supporting overall profit growth.

Also read: India’s top 3 fuel retailers may report Rs 47,700 crore loss in Q1. What’s behind this?

Technology is expected to report 14% profit growth, while capital goods and infrastructure are each projected to grow earnings by 10%. The broader consumer sector is expected to post 6% growth.

Divergence extends beyond sectors

The uneven earnings outlook is also reflected across different market caps.

MOFSL expects its smallcap universe to post 20% YoY PAT growth in Q1. In comparison, earnings are set to decline 2% for largecaps and 14% for midcap companies, largely reflecting the impact of losses in the oil & gas space.

Stocks to Track

Along with its Q1 outlook, the brokerage has shared a list of investment ideas heading into the earnings season.

Among the Top Nifty-50 ideas are Bharti Airtel, SBI, ICICI Bank, Mahindra & Mahindra, Titan, Shriram Finance, InterGlobe Aviation, HDFC AMC, BSE and Eternal.

Its Top Non-Nifty-50 ideas include TVS Motor, Radico Khaitan, Indian Hotels, RBL Bank, Dixon Technologies, Coforge, Kirloskar Oil Engines, Arvind and Delhivery.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)