Will tax cuts be enough to aid Q2 earnings? Here's what brokerages have to say

Prabhudas Lilladher in its preview of Q2FY20 corporate earnings report said, “We estimate a decline of 0.3 percent in sales, an increase of 3 percent in EBITDA and 5.9 percent in PBT.”

Prabhudas Lilladher

The brokerage report further said that despite a cut in corporate tax rates, the EPS for FY20 has not seen any appreciable increase. NIFTY is currently trading at 19.4x 1 year forward earnings which shows 6 percent premium to long term average 18.3, in comparison to 7 percent premium in August and 12 percent in July. We expect near term volatility to sustain given fears of rising corporate defaults and its impact spreading to more segments and sectors. We retain our 12-month NIFTY target of 12,488 which values markets at 19xFY21 EPS.

On the sectors’ front, Prabhudas believes that agriculture, aviation, pharma and media will show good sales growth while auto metals and oil & gas will be laggards. They further expect a widespread slowdown in consumer demand will have an impact on auto and consumer durables. Banks will gain due to lower provisions and while cement will show benefits of higher realizations.

Kotak Equities

Expect YoY decline in PBT of several sectors like auto, metals & mining, oil & gas. However, strong YoY growth in PBT could be seen in banks (led by Axis Bank, ICICI Bank and SBI), construction materials, diversified financials and pharma, added the report by Kotak Equities.

Speaking on the same, Edelweiss placed its highest bet of 25 percent+ growth on retail banks, OMCs (oil marketing companies) and consumer discretionary.

However, auto, corporate banks, telecom and metals are likely to either post profit contraction or losses. Overall, we expect a soft quarter and earnings revival could still take some time, the report added.