Earnings have been quite robust in the September quarter with a number of brokerages revising their future earning forecasts upwards. Global brokerage house CLSA, in a recent report, mentioned that Q2 saw the first EPS upgrade after 23 quarters of downgrades.
"After 23 quarters of continuous downgrades, this was the first reporting season when consensus lifted its Nifty EPS (2 percent/1 percent for FY21/22)," the brokerage stated.
CLSA analysts hiked earnings estimates for 64 percent of the stocks in its coverage while downgrades were for a much smaller 17 percent. This drove a 10 percent and 3 percent hike in Nifty's FY21 and FY22 EPS, respectively, added the brokerage.
Recommendations were also upgraded for 13 percent of the stocks in CLSA's coverage versus a downgrade in just 1 percent of the stocks.
Core Q2 profit before tax among stocks in CLSA's coverage was way ahead of estimates, rising 5 percent YoY versus its expectations of a 14 percent YoY decline. Almost nine stocks surprised in the September quarter for every two stocks that disappointed.
"The cement, IT, pharma, bank, infrastructure, power, realty, telecom, auto, staples, discretionary and oil & gas sectors saw strong results while Reliance Industries and the core performance of PSU refiners were below estimates," the brokerage further noted.
Sector-wise Review
Cement: Cement companies reported strong EBITDA led by better than expected volumes, noted the brokerage. 6 cement companies were upgraded between 8 percent and 36 percent after their results.
IT: As per CLSA, the majority of IT companies surprised on margins, led by higher offshore revenue, improved utilisation and stable QoQ costs. This led to 2-7 percent EPS upgrades ex-TCS.
Pharma: Eight of 10 pharma stocks under CLSA's coverage exceeded estimates, mostly led by a beat in gross margins and cost control. US sales beat estimates while India revenue was in-line, it added.
Banks: The top banks reported better-than-expected core PPOP growth driven by better NIM and lower operating expenditure, said the brokerage, adding that the strong asset quality guidance by top banks was a key positive.
Auto: CLSA further noted that most of the auto company results were also ahead led by higher revenue and lower operating expenditure. Cost control and positive operating leverage led to a QoQ improvement in profitability, it added.
Consumer: The results of most of consumer staple companies beat our estimates aided by better volume and margins, said CLSA. Similarly, most discretionary company results beat, mainly driven by higher-than-expected volume performance.
Meanwhile, telecom and real estate results also saw strong improvement in Q2. However, the core performance of PSU refiners was below estimates driven by a miss in marketing margins as well as lower volume.
Higher interest costs also drove a miss in the core profit before tax for index heavyweight RIL.
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