Banking, auto lead earnings surprise; consumer durables show early recovery signs: Amit Premchandani

India’s banking and automobile sectors have delivered earnings that exceeded market expectations, while the consumer durables segment is showing early signs of a turnaround after years of subdued performance, according to Amit Premchandani, Senior VP and Fund Manager at UTI Mutual Fund.

Banking sector posts strong quarter

The banking sector emerged as a standout performer in the latest earnings season, with loan growth reviving to mid-teens levels and margins holding steady despite earlier concerns. “Asset quality which few quarters back was a concern in select pockets of unsecured loan and MSME has again recovered,” Premchandani said in an interview with ET Now.
Banks have maintained high return on assets (ROA) and return on equity (ROE) profiles, with credit costs normalizing and slippages coming in significantly lower than anticipated. The favorable monetary policy environment is expected to support further acceleration in growth going forward.

Automobile growth accelerates beyond GST impact

The automobile sector continues to show robust growth momentum even after the initial GST-related surge. Passenger vehicle sales remained strong in December and January, driven by India’s low penetration levels compared to major global economies.
“If you compare India as compared to the global large economies, passenger vehicle is one part where we are severely underpenetrated,” Premchandani explained. The two-wheeler segment has also posted positive earnings surprises, adding to the sector’s overall positive momentum.

Consumer durables at inflection point

After facing headwinds from unseasonal rains and inventory overhangs last year, the consumer durables sector is showing early signs of recovery. The segment stands to benefit from being a late-stage play on the real estate cycle, as properties completed over the past five years approach delivery to end customers.
Margins in the sector, which had compressed significantly over recent years due to low operating leverage and intense competition, are positioned for improvement. “As volume growth revives, we think that some of the players will also start to pass on the recent price hikes,” the fund manager said.Players in the cables and wires segment have already demonstrated margin expansion despite rising commodity prices, benefiting from price increases passed on to customers.
Urban consumption shows green shootsThe post-GST cut period has witnessed a gradual pickup in urban consumption, which had lagged rural growth over the past 18 months. The impact is becoming visible first in discretionary large-ticket items and is now extending to lower-ticket consumer discretionary products.

Quick service restaurant (QSR) numbers and other consumption indicators suggest a broad-based improvement across the consumption theme. However, Premchandani maintained a relatively neutral stance on consumer staples, noting that most products in the category already have high penetration levels.

Focus on underpenetrated categories

UTI Mutual Fund is focusing its investment strategy on companies exposed to sectors with relatively lower per capita penetration, where growth potential remains substantial. This approach favors categories like passenger vehicles and consumer durables over mature staples categories.

The fund manager acknowledged the difficulty in predicting the duration of sectoral cycles but emphasized that current valuations in consumer durables appear attractive given the low base, expected volume growth, and margin recovery potential over the coming quarters.

As the earnings season progresses, investors are closely watching whether these early positive trends in banking, automobiles, and consumer durables can sustain momentum amid evolving macroeconomic conditions and the ongoing real estate delivery cycle.