Q2FY22 saw the fifth consecutive quarter of solid earnings growth for corporations. For Nifty, the collective earning growth of 37% is significantly higher than our and consensus estimates. However, unlike previous quarters, aggregate profits growth was led by the metals, oil & gas, and banking industries, with cars, insurance, and utilities lagging behind. The critical aspects that emerged were:
1) Robust demand recovery coupled with a revival of economic activity as a result of the rapid pace of COVID-19 vaccinations; and
2) Sharp margin contraction (Nifty companies – EBITDA margin ex-financials contracted by 128 basis points year on year), which was particularly noticeable for autos and agri-input and chemical companies due to elevated input, freight, and energy costs.