Domestic brokerage house Motilal Oswal expects Nifty50 companies to post another quarter of high double-digit growth. As per MOSL, after a 15 percent growth in Nifty earnings per share (EPS) in FY21 – the first double-digit growth in a decade, earnings are expected to grow by 35 percent in FY22.
Its outlook on corporate earnings and market performance in FY23 is also positive and forecasts 19 percent growth for FY23, led by banking, finance and insurance (BFSI), oil & gas, and information technology (IT).
Despite the frightening news emanating from the Russia-Ukraine warfront, US Fed rate hike, tightening liquidity, and supply chain disruptions, the market has remained resilient on the back of very strong corporate earnings, which matters the most to market returns in the long term, noted the brokerage.
It, however, highlights two important concerns. First, if global inflation remains stubborn and central bankers accelerate the pace of rate hikes and tighten liquidity, it could pose a headwind to equity valuations.
Second, there are clear pockets of a slowdown in domestic rural consumption, which needs to be tackled with urgency. It is important for this piece of the equation to recover for earnings to stabilize in the medium term.
"We expect a (Q4FY22) March quarter earnings growth of 23 percent YoY, which is the lowest since Q1FY21 but comes on a high base of 100 percent growth in Q4FY21. While the aggregate growth is impressive, it is narrow and driven by three sectors: BFSI, O&G, and IT. More than half of the
incremental growth is steered by BFSI, led by a modest revival in credit growth and improvement in asset quality trends. Upstream O&G companies are likely to benefit from the spike in crude oil prices in Q4FY22, driving aggregate earnings," explained the brokerage note.
The brokerage also informed that O&G, Financials, and Technology sectors are likely to contribute 88 percent of incremental earnings in the March quarter. Excluding Financials, it expects Q4FY22 earnings to record a modest 10 percent YoY growth. It further added that sales is likely to grow by 32 percent YoY in the March quarter, led by higher commodity and energy prices.
MOSL's model portfolio's positioning continues to focus on earnings visibility, economic recovery, pricing power, balance sheet strength and reasonable valuations. It maintains an overweight stance on BFSI, IT, Consumer, Metals and Cement and underweight positions on auto, utilities and energy, albeit, with incremental 100 bps addition in RIL. It also raised Healthcare to overweight and added Gland Pharma to its model portfolio.
In Financials, the brokerage is adding Bank of Baroda where an expected revival in business trends along with improving asset quality will lead to strong earnings growth.
Among Metals, MOSL is replacing SAIL with JSPL. SAIL is likely to report a very weak set of numbers for Q1FY23, the weakest among all steel names. Conversely, JSPL is expected to report a better margin than SAIL, it noted.
Amid midcaps, the brokerage is adding Macrotech, Dalmia Bharat, GR Infra, Restaurants Brands, Gujarat Gas, and Lemon Tree.
Its top Largecap picks include ICICI Bank, SBI, Infosys, HCL Technologies, Reliance, Titan, Apollo Hospitals, Hindalco, Bharti Airtel, Ultratech and BoB.
Its top Midcap picks are Ashok Leyland, Macrotech, APL Apollo Tubes, Chola Finance, Indigo Paints, Restaurant Brands, TCI, GR Infra, Dalmia Bharat, Lemon Tree and Angel One.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.