Cyclicals To Drive 3QFY21 Earnings

Motilal Oswal in its India Strategy Report has said that as we enter CY21, the backdrop to the market and corporate earnings has evolved considerably in the last three months.

"After a good 9%/15% run-up in Nifty/NSE Midcap 100 in 2QFY21, these indices have rallied 24%/23% in 3QFY21, led by corporate earnings, supportive liquidity conditions, low interest rates, and a sharp spike in FII inflows in Nov'20 and Dec'20. Opening up of the economy, 80% reduction in active COVID-19 cases since Sep'20, and strong high frequency macro data have lifted sentiment. Recent approvals for the COVID-19 vaccines have provided a booster shot to the Indian market, which has since then been on steroids, with a much broader participation from mid-caps and small-caps. While the Nifty crossed its previous highs much earlier, the NSE Mid-cap 100 index touched a record high today, indicating improving breadth," the report has said.

"After the blockbuster 2QFY21 corporate earnings season, which was characterized by big beats and upgrades across our coverage universe, 3QFY21 earnings are likely to be healthy. The drivers of earnings are also changing at the margin, with 3QFY21 earnings expected to be led by cyclical sectors like Metals and Cement, even as Healthcare is expected to post another solid quarter. The festive season has aided the demand recovery, and with vaccination against COVID-19 set to begin in the next few weeks in India, we expect demand to sustain further," India Strategy report has said.

According to Motilal Oswal, the market closed CY20 with 15% gains despite the economic turmoil caused by the COVID-19 pandemic.

"Corporate India's strong focus on the balance sheet, cash flows, and cost controls helped tide over this difficult period (Mar-Sep'20) as listed large companies gained market share in an environment where unlisted and smaller players encountered multiple challenges.

The post-quarter updates/commentaries from key companies like HDFC Bank, HDFC, Bajaj Finance, Bandhan Bank, Titan, Marico, Godrej Consumer, Auto OEMs, etc. are indicative of strong underlying growth trends in 3QFY21. Pick up in property registrations in key metro cities like Mumbai after a long time augurs well for broader macros as a sustained pick-up in Real Estate would have a multiplier effect on the economy. We expect the government to prioritize growth in the forthcoming Budget with a push towards fiscal spending and incentives for consumption," the report has said.