While it is being felt that markets are trading ahead of fundamentals, it is also a known fact that market factors in parameters in advance.
The BSE Sensex and Nifty50 have not moved much in last one month, but since March lows the indices have rallied over 55 percent each in anticipation of strong earnings growth as well as gradual economic recovery.
Leaders from every sector have reported better to in-line earnings so far, indicating strong and double-digit growth in FY22, and marginal growth in FY21, experts feel.
The broader markets also moved at similar pace with the Nifty Midcap index climbing 55 percent from March lows and Smallcap surging 75 percent.
"Q1FY21 corporate earnings in India were better than pessimistic expectations (due to the COVID lockdown), and this was largely helped by cost reductions by various companies. Q2 FY21 earnings so far have largely been coming in better-than-expected," Sampath Reddy, Chief Investment Officer at Bajaj Allianz Life told Moneycontrol.
"For FY21, we estimate Nifty EPS growth to be flattish at around 2 percent and for FY22 we estimate a strong recovery in Nifty EPS growth to around 30 percent, he said.
The Nifty index is currently trading at 19-20x of one-year forward earnings (which is above pre-pandemic levels), but the forward PE valuation based on FY22 earnings is quite reasonable (factoring-in the healthy recovery in corporate earnings), and markets seem to be focusing more on the latter, he feels.
The Q2FY21, so far, witnessed robust numbers from IT, Pharma, Auto components, select banks, and cement sector companies.
Here are top 12 stocks for which analysts have upgraded earnings estimates after strong September quarter show:
Siddhartha Khemka, Senior Vice President | Head-Retail Research at Motilal Oswal Financial Services
Tata Motors: We upgrade FY22E EPS by 13 percent to factor in lower tax in JLR (reversal of deferred tax). We maintain buy with target of Rs 230 (September 2022 SOTP).
Kotak Mahindra Bank: We increase FY21/FY22 earnings by 27 percent/20 percent, aided by steady revenues and sharp decline in provisioning expenses. We upgrade rating to buy, following a gap of 10 quarters, when we had downgraded rating to neutral, nearly at current price. We revise target to Rs 1,650.
JSW Steel: We expect Q3FY21 margins to be even stronger as higher steel prices (HRC price currently is Rs 4,000 per tonne higher than Q2) and upward revision in fixed price contracts should lead to higher realization. We raise FY21/FY22 EBITDA by 25 percent/5 percent to factor in higher realization. Maintain buy with target of Rs 372.
CG Consumer: Incorporating strong 2QFY21 performance, we have increased FY21/FY22/FY23 EPS by 13 percent/7 percent/7 percent. Maintain buy rating with higher target of Rs 360.
Mphasis: We upgrade FY21/FY22 EPS by around 7 percent, largely driven by (a) revenue beat in the quarter, (b) recent large deal wins, and (c) an optimistic outlook. Notwithstanding the DXC overhang, with strong digital transformation capabilities and low exposure to impacted verticals, we believe Mphasis is well-positioned to be a key beneficiary in the current context. Upgrade to buy with target of Rs 1,665.
L&T Infotech: We upgrade FY21/FY22 EPS estimates by 7 percent/11 percent as we adjust to the margin surprise in the quarter. As digital becomes mainstream, we expect L&T Infotech to benefit from continued investments in digital capabilities, strong client additions, and mining abilities. Target price stands at Rs 3,480. Maintain buy.
Granules: We raise EPS estimate by 21 percent for FY21/22E to factor in: (a) niche ANDA launches, (b) a superior product mix, c) geographic expansion, and d) better operating leverage. We raise the PE multiple to 16x (from 15x earlier) to factor in product diversification and improved return ratios. Accordingly, we arrive at target of Rs 500 on a 12-month earnings basis and reiterate buy.
Oberoi Realty: Early festive cheer is visible in residential sales pickup in Q2FY21 (up 1 percent YoY). Oberoi Realty's strong pipeline of project launches in second half of FY21 (Exquisite III, Sky City Phase II and Thane (in case unified DCR is finalized)) augurs well for the residential segment as we move into the festive season. We have upgraded estimates for FY21/22 by 53 percent/4 percent to bake in Oberoi Realty's aggressive launch plans and strong demand dynamics in the residential segment. We maintain buy with a target of Rs 480.
Trident: Factoring the beat to earnings estimates and improved visibility for demand in the textiles segment, we have increased PAT estimates for FY21/FY22 by 38 percent/15 percent. We value the company at 11x FY22E EPS and arrive at target price of Rs 10. We maintain buy.
Infosys: We upgrade FY21/FY22 EPS estimates by 9 percent/12 percent as we adjust revenue and EBIT margin trajectory. Infosys should be a key beneficiary in terms of recovery in IT spends in FY22. Additionally, leading operational performance in first half of FY21, coupled with strong deal wins, should translate to strong outperformance on EPS growth (versus the sector). We reiterate buy with target of Rs 1,355.
Vineeta Sharma, Head of Research at Narnolia Financial Advisors
Infosys: There has been continuous improvement in revenue based on multiple dimensions like digital scaling, large deal wins, continuous account expansion, strong client matrix. Also, there have been margin expansions even after rewarding employees with increments and one-time special bonus. Margin guidance also improved for FY21 to be in the range of 23-25 percent (versus 21-23 percent earlier). We value the stock at Rs 1,254 valued at 26 times FY22E EPS.
L&T Infotech: We expect broad-based demand across verticals. The company added 26 new logos across all the verticals in Q2FY21 and won large data and analytics led transformational deal with net new TCV in excess of $40 million. There is a very healthy deal pipeline, which is about 22 percent higher on a YoY basis. We recommend buy with a target price of Rs 3,331.
Amara Raja Batteries: The company reported 14 percent plus YoY growth in revenues while maintaining EBDITA margins at 17.6 percent. With continued improvement in automobiles sales and strong replacement demand, we expect Amaraja Batteries Revenues to rebound going ahead. Target price for Amara Raja Batteries is Rs 878.
UltraTech Cement: The cement industry witnessed positive demands in East, Central, Gujarat, and North. The company reported 19 percent YoY volume growth on account of positive demand from rural on the back of pick-up in government spends on infrastructure, affordable housing, higher MSPs, and also demand revival from Urban. EBITDA margin improved by 609 bps to 26 percent YoY led by a decline in power & fuel and other expense. We have revised UltraTech's target price to Rs 4,900.
Kotak Mahindra Bank: FY21 pat increased by 26 percent mainly on account of lower credit cost and higher other income in Q2FY21. Asset quality during the quarter improved with gross NPA at 2.55 percent versus 2.70 percent in Q1FY21 while the net NPA was 0.65 percent versus the 0.87 percent in Q1FY21. The bank is carrying Rs 1,279 crore of COVID 19 provisions which are about 0.6 percent of the advances. The bank is ready in terms of the strategic move of thinking differently and will focus on the asset side of the customer acquisition from now on. The bank is seeing strong traction in AMC, investment banking, life insurance businesses. Target price for Kotak Mahindra Bank is Rs 1,650 per share.Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.