5 Stocks That Are Seeing An Earnings Upgrade For FY 2022-23

Stocks are generally driven by two things: the first is liquidity and the second is earnings. In a recent India Strategy report, here are 5 stocks that have been highlighted for an earnings upgrade.

BPCL, Bajaj Auto, HeroMoto Corp, Asian Paints and M&M

According to the Motilla Oswal report, the top earnings upgrades at stock level (FY23E) were as follows: BPCL (33%), Bajaj Auto (15%), Asian Paints (14%), Hero MotoCorp (13%), and M&M (12%).

The top earnings downgrades at stock level (FY23E) came according to Motilal Oswal in as follows: Hindalco (-29%), Tata Motors (-22%), JSW Steel (-13%), Divi's Labs (-11%), and Apollo Hospitals (-8%).

"The adverse macroeconomic backdrop with heightened worries on rising interest rates, elevated crude oil prices and liquidity tightening has kept the market volatile and jittery. Meanwhile, the domestic earnings season continues to remain healthy and provides a silver lining, notwithstanding the challenges faced on multiple fronts. We expect the full impact of elevated input costs to be felt in 1HFY23 as 4QFY22 had some benefits of lower RM inventory. After the correction, the Nifty trades at 19.2x FY23E, at its 10-year average P/E of 19.4x. We find more value in largecaps than mid-caps given the relative valuation equation. That said, we reiterate that earnings delivery is crucial for markets to hold, in an adverse milieu of volatile and challenging macro," the brokerage has said.

Real estate tops sector wise earnings

"Sector-level earnings revisions for our Motilal Oswal Financial Services Universe stood as follows: Real Estate, Utilities, Automobiles, Private Banks, Oil & Gas, and Capital Goods saw FY23E earnings upgrades of 16%, 7%, 4%, 3%, 2%, and 2%, respectively. While Staffing, Metals, Healthcare, PSU Banks, NBFCs, Logistics, Technology, and Cement sustained FY23E earnings cut of 12%, 9%, 7%, 5%, 4%, 3%, 3%, and 2%, respectively," the brokerage has said.

Earnings for 4QFY22 were in line

Earnings for 4QFY22 were in line with MOFSL expectations. "However, there was a wide divergence between sectors adversely affected by rising raw material prices (Autos, Cement, Consumer Staples and Durables, Specialty Chemicals) and those not directly impacted/benefitted by rising prices (BFSI, Metals, O&G and Technology). Private Banks' asset quality continued to improve with moderation in slippages, credit costs and NPA ratios, while the restructured book also declined sequentially. The IT companies witnessed some moderation in growth momentum on the high base of 3QFY22, with overall USD revenue growth at 2.3% QoQ and 17.1% YoY. For FY22, USD revenue grew 19% YoY," the brokerage has said.