Top stock picks you should look at post the December quarter earnings

Earnings came in line with Street expectations in the third quarter of the financial year 2021-22 despite the impact of high commodity and energy prices that impaired gross margins across sectors. While sectors like Private Banks, NBFC, Logistics, Retail and Utilities reported higher-than-estimated PAT growth; Autos, Cement, Consumer Durables, Healthcare and Metals reported PAT below estimates in Q3FY22.

"Among the Nifty constituents, 43 percent beat our profit after tax (PAT) estimates while 24 percent missed. Except for Metals and oil and gas, Nifty constituents clocked 12 percent YoY growth at the PAT level (in line with estimates)," brokerage house Motilal Oswal stated in an earnings review report.

Post the earnings, the brokerage said that it continues to remain bullish on banking, financials, IT, Consumer, Metals, and Cement, and Underweight on Autos and Energy in its model portfolio.

The report added that sectors like metals, oil and gas, and financials accounted for 103 percent of the incremental YoY profit accretion in Q3FY22, meanwhile, Auto, Cement, Consumer Durables and Healthcare disappointed with YoY earnings decline.

"Rising commodity prices and unprecedented inflation adversely impacted gross margins across sectors while rural demand slowdown hurt consumption-based sectors," explained MOSL.

Going ahead, the brokerage believes that given the global and local macro construct of rising rates, higher crude prices due to Russia-Ukraine tensions, consequent higher

inflation and bond yields, geopolitical flare-ups and rich valuations, it expects volatility to remain elevated and markets to stay sideways until earnings catch up with valuations.

It has also listed its top post-earnings picks from the largecap as well as midcap, smallcap space.

Among largecaps, the brokerage prefers RIL, Infosys, ICICI Bank, HUL, SBI, Bharti Airtel, L&T, Axis Bank, Titan, and Hindalco. For FY22-24, it sees the highest earnings per share (EPS) CAGR of 82.9 percent for Airtel followed by 33 percent for Axis Bank, 29.5 percent for SBI and 24 percent for ICICI Bank and Titan.

Meanwhile, among midcap and smallcap stocks, the brokerage is bullish on Gujarat Gas, Ashok Leyland, Oberoi Realty, Indian Hotels, Aditya Birla Fashion, Devyani International, Indigo Paints, Zensar Tech, Orient Electricals, and VRL Logistics.

For the year ahead, sector-level earnings revisions by MOSL stands as follows: Infra (17 percent), O&G (8 percent), PSU Banks (5 percent), Logistics (3 percent), Capital Goods (2 percent) and Retail (2 percent).

Meanwhile, Healthcare, Autos, Consumer Durables, Utilities and Consumer sustains FY23E earnings cut of 4 percent, 3 percent, 3 percent, 2 percent and 2 percent, respectively.

The top earnings upgrades (FY23E) include ONGC (29 percent), SBI Life (19 percent), Hindalco (7 percent), Cipla (6 percent) and Maruti Suzuki (6 percent). 

While the top earnings downgrades (FY23E) are Tata Steel (-15 percent), Eicher (-11 percent), Tata Motors (-10 percent), Britannia (-7 percent), Coal India (-7 percent), HDFC Life (-7 percent), and Dr Reddy’s (-5 percent).