The sentiment on the Street has been upbeat since May after the number of daily Covid cases peaked around 4 lakh per day in early May. The rally has been despite the talks of a possible third wave of coronavirus, shortage of vaccine in India and rising inflation woes (global).
Healthy earnings from the India Inc has been one of the key factors that fuelled the rally, along with falling number of Covid cases and unlocking in various states.
The daily number of new Covid cases have been below 1 lakh for about a week now.
Q4FY21 is turning out to be the fourth consecutive quarter when more companies reported earnings beating the analyst expectations than missing them, ICICI Securities said in a report.
If we ‘Look through earnings’ of NIFTY200 portfolio, it has risen sharply by 120% driven by cyclical in Q4FY21, said the brokerage.
Data collated from Capitaline and I-Sec Research highlighted that the net profit of companies in the Nifty200 index rose to Rs 893 bn, compared to Rs 402 bn seen in the year-ago period. While for Nifty50 – the net profit has more than doubled.
This was led by cyclicals, which has resulted in PAT-to-GDP ratio rising to 2.8 percent despite an upward revision to FY21 GDP base, ICICI Securities said.
Nominal GDP for FY21 was revised upward by 0.8% to Rs197 trillion.
Currently, the PAT to GDP ratio is rising from a two-decade low level of 1.6%, said the report.
The latest GDP print indicates that the economic recovery is led by investments. The real investment rate rose to a 2-year high of 34.3 percent driven by the robust construction and manufacturing sector along with higher government spending.
Robust quarterly results from sectors such as metals, cement, building material, capital goods, auto also helped.
“We believe the environment for Capex cycle is turning conducive at a macro level. Pick up in contact-intensive consumption will be with a lag and depends on consumer confidence,” highlighted the report.
However, the brokerage firm said that the risk emanates from inflation going out of hand and demand outlook falling which looks unlikely currently. Rolling forward earnings by one quarter, our one-year ahead (June’22) NIFTY50 target stands at 17,250.
Top picks from ICICI Securities are SBI, Axis Bank, HDFC Bank, NTPC, PTC India, L&T, UltraTech Cements, Bharti Airtel, Tata Communications, GAIL India, Tata Motors, TVS Motors, Motherson Sumi and Jyothy Laboratories.
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