Analysts positive on FMCG, IT and BFSI sector, here’s why

These 37 stocks were expected to provide a YoY PAT growth of 6.9%, while the actual growth is 10.1%, better than expected. The best performers are Auto, Retail and Financials, led by decent traction in consumer demand and discretionary spending. Conversely, weaker performances are observed in FMCG (excluding select stocks adopting new-age digital business models), Energy, Insurance, and IT sectors. Noteworthy sector insights are derived from Banks, IT, and FMCG.

Based on the cluster of large bank stock results released, the companies have performed in-line with expectation. Quarterly earnings have grown on a healthy, high double-digit year-on-year basis, with 5% sequentially. However, there has been a slight contraction in Net Interest Margins (NIMs) across several companies. Additionally, certain banks, like medium sized and rural ones, have observed a spike in Non-Performing Assets (NPAs), leading to concerns about the quality of their assets. Looking forward to the first two quarters of FY25, banks are anticipated to show only suboptimal growth in Net Interest Income and net profit. This can be attributed to increased costs of funds and an uptick in Gross Non-Performing Assets (GNPAs). The remarkable growth in advances and deposits achieved last year appears unsustainable. Consequently, a moderation in growth and stressed NIMs point to subdued performance by banks in the short-term.   

The Indian IT sector was predicted to experience sluggish growth in Q4, and most of the actual results fell below expectations, primarily due to difficulties encountered by the BFSI and retail around the globe. However, there was an improvement in margins attributed to cost-saving measures initiated by companies during slum demand. Depreciation in INR did help boost margin. Our stance on the sector in the short term remains Neutral. For FY25, a subdued growth outlook persists for the Indian IT sector. Despite an uptick in deals and rising demand from Generative AI, the IT sector is expected to face volatility due to persistent concerns about prolonged inflation and high rates. Yet, any signs of an end to the rate-tightening cycle in the US could uplift investor sentiment in the next 1-2 quarters.

In FMCG, the revenue growth was almost in line with the expectations. The volume growth for Q4FY24 is in the low single digits. However, the growth in operating profit was above anticipations, largely due to reasons including lower input prices, improvements in product mix, and price growth. However, revenue growth is expected to improve in the coming quarters as volume growth is expected to gradually improve in FY25, supported by a pickup in rural demand given the normal monsoon forecast and presumption of government’s rural focus in the upcoming budget. The degree of margin improvement will depend on price growth and further stabilisation of input prices, with a positive bias as global inflation is forecast to narrow. The crude price is currently volatile, and any uptrend will negatively impact margins. We have a positive rating on the FMCG sector, as industry valuation has also contracted in the last 1-2yrs.

Although the overall results performance slightly exceeds expectations, there is a consensus emerging that the earnings growth expected for FY25 is likely to be slower compared to FY24. Projections suggest that the significant 23% EPS growth observed in FY24 within the Nifty50 is forecasted to moderate to approximately 14-15% in FY25.

The author Vinod Nair, is the author of Head of Research, Geojit Financial Services.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 05 May 2024, 03:18 PM IST