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Last Updated : Nov 19, 2020 10:00 AM IST | Source: Moneycontrol.com

Upgrades outweigh downgrades by 4x post September quarter earnings; 10 largecaps in focus

Corporate commentary across the sectors suggest continued demand recovery in 3QFY21 underpinned by a healthy start to the festive season.

India Inc. delivered nothing short of blockbuster results for the September quarter with big beats and upgrades. With an upgrade-to-downgrade ratio of 4:1 – this has been one of the best earning seasons in many years amid the outbreak of COVID-19.

The net profit of Nifty50 companies increased by double digits compared to muted expectations. Better-than-expected results reflect stronger-than-expected sales and volumes across sectors aided by lower costs, suggest experts.


“The September quarter earnings season got off to a positive start with a slew of companies beating expectations, which had been scaled down in recent months. The earnings surprise has been supported by a robust rural demand, increasing government spending, and cost control measures taken by corporates,” Harshad Patil – SVP and Chief Investment Officer, Tata AIA Life Insurance told Moneycontrol.

“The earnings upgrade was largely warranted as the expectations had been beaten down significantly. However, with most of the above-mentioned factors waning as well as a rise in input costs, the earnings would largely track the overall consumption demand and subsequent revenue growth for the corporates,” he said.

The September-quarter (2QFY21) corporate earnings season was a blockbuster one, with big beats and upgrades across our Coverage Universe. With an upgrade (>5%)-to-downgrade ratio (<-5%) of 4:1, this has by far been the best earnings season in many years, Motilal Oswal said in a report.

More importantly, corporate commentaries across the sectors suggest continued demand recovery in 3QFY21 underpinned by a healthy start to the festive season.

“Nifty sales declined 6.7% YoY (est. -5.2%), while EBITDA/PBT/PAT reported growth of 8%/14%/17% YoY (est. -0.3%/-7%/-5%). 62% of Nifty-50 companies reported a beat on our PAT estimates, and only 18% posted results below our expectations,” said the report.

In terms of sectors, Cement, Private Banks, PSU Banks, Healthcare, Oil & Gas (O&G), Technology, and Utilities reported YoY profit growth, while Auto, Capital Goods, Consumer, NBFC, and Retail reported YoY declines. The Telecom sector posted a loss.

Motilal Oswal is overweight on sectors like BFSI, IT, Healthcare, Auto, and Telecom and neutral on Consumer in their model portfolio.

The domestic brokerage firm prefers these 10 largecap stocks post Q2 results that include RIL, Infosys, HUL, ICICI Bank, SBI and Hero MotoCorp.

Largecap 18 November

What does the future hold?

After a stellar show in the September quarter along with strong and positive commentary from the management, experts are of the view that the momentum is likely to continue and will pick up in FY22.

“The sharp recovery for many companies in Q2 FY21 results is nothing short of impressive. Barring few stressed sectors like aviation and multiplexes, the scene is highly encouraging,” Amar Ambani, Senior President and Head of Research - Institutional Equities at YES SECURITIES told Moneycontrol.

“While many businesses have grown on a year-on-year basis, many others are only 10-20% below pre-COVID levels. Banks also resumed lending and many didn’t feel the need for high Covid related provisioning,” he said.

Kotak Institutional Equities in a note said that 2QFY21 net profits of the Nifty-50 Index increased 16.4% on a YoY basis versus our expectation of 1.6% decline and EBITDA of the Nifth-50 Index increased 9.4% YoY versus our expectations of 2.5% decline.“We expect net profits of the Nifty-50 Index to grow 9.6% in FY2021 and 29% in FY2022 versus the 2.5% in FY2021 and 33.6% in FY2022 at the beginning of the 2QFY21 results season,” said the note.

The earnings upgrades reflect a faster-than-expected recovery in most sectors and stronger-than-expected sales and profits across sectors in 2QFY21.

The domestic brokerage firm expects a further pickup in economic activity in 2HFY21 and FY2022 as beleaguered ‘physical’ sectors see further normalization over the next 9-12 months.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

First Published on Nov 19, 2020 10:00 am