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In the current environment of monetary tightening, rising inflation, ongoing geopolitical tensions between Russia and Ukraine, and uncertainty around GDP growth; earnings will be the key focus for investors in the near term.

While the March quarter (Q4FY22) earnings season saw an overall in-line performance with wide divergences across sectors and companies; the upcoming June quarter earnings may be more impacted by the ongoing macro developments.

Amid this environment, domestic brokerage house HDFC Securities maintains a bias towards economy-facing and value sectors. It continues to be bullish on large-cap banks and IT, industrial and real estate, power, autos, gas, insurance, and capital markets while remaining underweight on consumer (staples &amp; discretionary), NBFCs, and small banks.

Among stocks, the brokerage has added <a target="_blank" href="https://mintgenie.livemint.com/stocks/mahindra-%2526-mahindra-S0003059">M&amp;M</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/hero-motocorp-S0003088">Hero Motocorp</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/tvs-motor-co-S0003138">TVS Motor</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/multi-commodity-exchange-of-ind-S0003237">MCX</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/indian-oil-corp-S0003056">IOCL</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/oil-%2526-natural-gas-corporation-S0003030">ONGC</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/hcl-technologies-S0003045">HCL Tech</a>, and <a target="_blank" href="https://mintgenie.livemint.com/stocks/dalmia-bharat-S0003494">Dalmia Bharat </a>to its portfolio for the upcoming quarter while removing <a target="_blank" href="https://mintgenie.livemint.com/stocks/tata-motors-S0003022">Tata Motors</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/shriram-transport-finance-co-S0003077">Shriram transport</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/federal-bank-S0003070">Federal Bank</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/uti-asset-management-company-S0003290">UTI AMC</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/orient-electric-S0003796">Orient electric</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/gujarat-state-petronet-S0003594">GSPL</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/fine-organic-industries-S0003634">Fine Organics</a>, <a target="_blank" href="https://mintgenie.livemint.com/stocks/teamlease-services-S0003875">Teamlease</a>, and <a target="_blank" href="https://mintgenie.livemint.com/stocks/birla-corporation-S0003350">Birla Corp</a>.

The brokerage noted that during the March quarter, it coverage universe saw strong YoY growth in the segments of energy, metals, chemicals, lending financials and real estate while infrastructure and cement sectors disappointed and IT continued its steady growth.

It further said that the common theme across management commentaries in the previous quarter was their attempts toward price hikes to counter elevated commodity inflation and freight costs. Various industry players found it challenging to execute it adequately without disturbing demand except for a few auto and chemical companies, it added.

Given the steep cost inflation expected in the first half of FY23, most of the sectors witnessed earning cuts led by energy, IT, industrials, banks and consumers, the brokerage said. Consequently, overall earnings estimates witnessed cuts of 4.3 percent and 4.1 percent in FY23 and FY24 respectively, it added.

Among sectors, HDFC noted that the large banks have witnessed a strong recovery in asset quality and reduced credit cost which made them confident enough to accelerate lending. Meanwhile, after a sharp uptick, IT sector growth is reverting to a medium-term baseline.

It further said that the staple producers felt the pinch of inflation as volume growth decelerated and rural was yet to pick up as price hikes were inadequate to counter inflation. Whereas apparel bounced back to pre-covid level and profitability was restored due to price increase and higher full price sales, it added.

Chemical producers, HDFC stated, reported healthy revenue growth and adequate pass-through of raw material cost increase. Meanwhile, the rise in imported coal prices and lower domestic supply created a power deficit situation and merchant prices rose. The infrastructure sector enjoyed tailwinds and a healthy order book given the government’s focus on infra projects, it said, adding that elevated input prices spoiled the party though as risks of margin compression and projects getting delayed rose.

Also, upstream oil &amp; gas companies reaped the benefits of higher crude &amp; domestic gas realization and boosted the corporate profit pool of India in a meaningful way and finally, after a hiatus, the auto sector looked up led by demand-pull.

The brokerage estimates that for their coverage universe, both FY23 &amp; FY24 projected earnings growth stands at 13.3 percent incorporating momentum normalisation and steep cost rise after robust earnings growth in the previous two years. Further, Nifty consensus FY23 EPS remains largely unchanged but it sees downside risks to this in H1FY23.

HDFC Securities says bias towards economy-facing and value sectors remains

The brokerage continues to be bullish on large-cap banks and IT, industrial and real estate, power, autos, gas, insurance, and capital markets

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