In the first quarter of FY22, domestic brokerage house Motilal Oswal expects a 94 percent YoY increase in Nifty profit and a 48 percent increase in sales (Q1FY22). It forecasts a PAT CAGR of 16 percent for the Nifty over Q1FY20-22. Metals, IT, BFSI, and consumers, according to the brokerage, will be the main drivers of growth in the quarter.
"Q1FY22 earnings are estimated to be strong despite the restrictions imposed, albeit benefitting from the deflated base of 1QFY21. Even on a two-year CAGR basis, we expect double-digit earnings growth owing to the resilience seen in underlying economic activity," the brokerage report said.
The key drivers of the Q1 performance as per MOSL are likely to be:
a) Metals
– This would be on the back of a strong pricing environment and higher exports to offset the decline in domestic volumes.
b) IT – The strong performance would continue as it expects median dollar organic growth of 3.3 percent constant-currency QoQ in Q1FY22 on the back of a strong demand environment and healthy YoY margin expansion.
c) BFSI – Despite muted asset growth, lower provisioning costs would drive strong earnings YoY.
d) Consumer – It is expected to post a healthy performance with 23–25 percent EBITDA/PAT growth, despite rising commodity cost pressure
It also noted that the equity markets have largely looked through the turbulent period of April/May’21 and have shown strong resilience, with indices trading near all-time highs, buoyed by best-in-decade earnings delivery in FY21 and the expectation of an even better FY22. It added that a rise in vaccination is expected to improve further on increased availability.
The midcap and smallcap indices have also sharply outperformed the Nifty and reset several benchmarks and the primary markets are seeing a flurry of activity with several IPOs lined up. Amid this positive setup, rising commodity costs, higher inflation prints, and a potential rate increase are key headwinds, MOSL added.
Moreover, it expects FY22 to commence with a bang after FY21 ended with a solid 15 percent EPS growth and expects a further buildup over the remainder of FY22. However, it downgraded Nifty FY22 EPS estimates by two percent to Rs 733 from Rs 748, while FY23 EPS is stable at Rs 868. As the economy reopens and vaccinations gain momentum, demand recovery could strengthen, it added. It expects earnings to accelerate and estimate an FY21– 23 CAGR of 26 percent for Nifty EPS.
