Q4FY21 earnings | Can COVID-19 puncture the hopes of a strong quarter?

The fourth quarter earnings (Q4 FY21) of India Inc will start to trickle in from April 12 with IT heavyweight TCS announcing its Q4 scorecard on the same day.

After two consecutive quarters of strong earnings and upgrades, analysts, brokerages and market participants expect healthy earnings this time too which could trigger further upgrades in consensus estimates for Nifty and Sensex earnings for FY22 and FY23.

However, some companies may see pressure on margins due to the rise in commodity prices.

"The earnings season is likely to be healthy and could end with further upgrades in consensus estimates for Nifty/Sensex earnings for FY22 and FY23," Gaurav Dua, SVP and Head - Capital Market Strategy at Sharekhan told Moneycontrol.

"However, unlike the past two quarters, the rising commodity prices would put pressure on margins across many sectors in the March quarter results and consequently, limit the growth in earnings in some key sectors," said Dua.

March quarter earnings will be among the top triggers that will dictate the trend of the market in the near term. However, can a surge in COVID-19 cases, which can potentially derail the economic recovery, hit earnings too?

The daily cases in the second wave have already surpassed the peak of the first wave, forcing many state governments to introduce fresh restrictions.

Harsha Upadhyaya, CIO, Kotak Mutual Fund told CNBC-TV18 that earnings are going to be very strong given that we have a favourable base as well we have seen sequential improvement during the January-March quarter.

"The earnings will not really pull down the markets. Over the next couple of months, we will see economic momentum coming back and vaccination also gaining momentum and that should help the markets in the

medium-term," said Upadhyaya.

In a broader sense, the March quarter earnings will come on a stronger note, despite some disruption in the last month of the quarter due to COVID-19.

"We are not too concerned about the earnings. Any disruption is a blessing in disguise for great companies through market share gains hence we are looking forward to the next two three years despite the second wave of COVID-19," Rakshit Ranjan, Portfolio Manager, Marcellus Investment Managers told CNBC-TV18.

As per domestic brokerage firm Motilal Oswal Financial Services, Nifty may post a healthy two-year profit CAGR of 14 percent over Q4FY19–Q4FY21.

"Over 4QFY19–4QFY21, Nifty should post a CAGR of 6 percent, 10 percent, 12 percent and 14 percent," Motilal said.

As per the brokerage, Nifty sales should grow 18 percent, EBITDA 26 percent, PBT 77 percent and PAT should grow 65 percent YoY in Q4FY21E.

The brokerage firm believes metals, private banks and NBFCs, IT, autos and consumer staples and durables will be the top drivers of the Q4FY21 performance.

"Metals, private banks and automobiles are expected to drive nearly 60 percent of the incremental Q4FY21 PAT growth. Consumer durables, cement, healthcare, consumer staples and technology are likely to post earnings growth of 62 percent, 59 percent, 43 percent, 19 percent and 16 percent year-on-year (YoY), respectively," Motilal said.

FY21E/FY22E Nifty EPS estimates have seen minor tweaks. As per Motilal, Nifty's FY21 EPS has seen a marginal 1 percent cut to Rs 533 against the previous Rs 541.

However, Nifty FY22/FY23 EPS is stable at Rs 726/Rs 861 (prior: Rs 719/Rs 857), Motilal pointed out.

Despite the unprecedented challenges of FY21, the Nifty should end the year with healthy 13 percent EPS growth, Motilal Oswal believes.

Another brokerage firm Kotak Securities expects a strong YoY increase in the net income of automobiles, banks, metals & mining and oil & gas.

Kotak expects net profits for Sensex to increase 55 percent YoY and 6 percent QoQ and for the Nifty50 to increase 125 percent YoY and 8 percent QoQ.

Kotak estimates EPS of Sensex at Rs 2,197 for FY22 and Rs 2,596 for FY23 and of the Nifty50 index at Rs 688 for FY22 and Rs 803 for FY23.

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