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IT Sector Sees Best Sequential Performance In First Quarter
The IT sector was the best performing sector so far, in all the interim results declared thus far, broking firm Motilal Oswal has said in a report. According to the brokerage, key drivers of 1QFY22 performance were:
Information Technology
This sector according to Motilal Oswal has reported one of the best sequential performances, led by strong sequential revenue growth of 4.5% (USD) and the highest ever deal pipeline, providing earnings visibility going forward. Management commentaries have indicated a strong tech spending environment with an elevated focus on cloud migration / digital transformation deals.
Cement
Strong price realization and better cost control have driven performance in this sector. The volume decline in northern/central India was lower than expected vis-à-vis southern India, which had stricter lockdowns.
Autos
High RM inflation and operating deleverage have impacted most of the results in 1QFY22. OEMs (Maruti, Bajaj Auto, Tata Motors and TVS) have reported a commodity cost impact of 3-4 QoQ.
Key sectoral insights
1QFY22 marks the fourth quarter of robust QoQ revenue growth; 8 of 13 companies have beaten our earnings expectations. Strong demand has led to one of the highest ever headcount additions of 71k in 1Q in recent history.
Cement
Cement companies' earnings have been aided by strong price realizations. Companies have offset higher power, fuel, and freight costs with higher price realization and cost control.
Consumer
Most companies have reported double-digit sales growth, albeit on a soft base, as companies were better prepared to deal with the lockdowns.
The performances of Asian paints, Jubilant, UNSP, and UBBL have been particularly robust despite the limitations.
Banks
Fresh slippage from the Retail segment has impacted most private banks, although the impact on asset quality has been less severe than that seen during the first wave. Banks, however, are carrying additional provision buffers, which should limit the impact on credit cost.
Metals
Only JSW Steel, Hindustan Zinc, and Vedanta have thus far reported
results among the steel/non-ferrous companies. Steel volumes have been weak,
as expected, due to local lockdowns impacting demand and congestion at ports
limiting exports.
