The March-quarter corporate earnings-report season was mostly in line with Street expectations for the Nifty stocks with domestic Cyclicals driving earnings growth for the second consecutive quarter, led by financials. Midcaps, on the other hand, outperformed during this earnings season.
Going ahead, Edelweiss expects the NSE-500 earnings to increase by 30 percent, while mid-cap earnings would nearly double in FY20. The brokerage also expects the broader markets to outperform in the frontline indices in the next one year.
Based on the earnings expectations, the brokerage's Nifty target is around 13,000-13,500 level while Midcap 100 Index target is at 25,000-level in the next one year.
According to the brokerage, the surge in earnings growth would be brought about by the profitability revival in public sector banks (PSBs), which would return to profitability after four years of benign or negative profits. The decline in the quantum of provisioning and smooth resolutions under IBC would spur the earnings recovery, it added in a report.
"We believe profits of PSBs in the NSE-500 universe would rise by 165 percent in FY20 to Rs 39,000 crore. while PSBs in NSE Midcap 100 universe would see FY20 profits at Rs 11,000 crore, a 139 percent jump," Edelweiss said.
The broader market, especially in the midcap index, is trading at nearly 16 times its one-year forward earnings, which is significantly lower than its average of the last five years which is at 20 times. Hence, the brokerage believes that attractive opportunities are starting to arise in the midcap universe and a broad earnings recovery would give a further boost to the sector.
Auto and ancillaries, mid-cap financials and FMCG sectors are currently attractive on the basis of valuations, the brokerage added.
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