Blockbuster Earnings Season For Corporate India

It has been a blockbuster earnings season for corporate India, with big beats on aggregates and improved management commentaries, says an India Strategy Report by Motilal Oswal.

88 companies from Motilal Oswal Financial Services Ltd (MOFSL) Universe and 32 Nifty companies have announced their results as of 31st October 20.

Companies that have reported earnings thus far comprise: (a) 62% of est. PAT for the MOFSL Universe, (b) 70% of est. PAT for the Nifty, (c) 63% of India's market capitalization, and (d) 79% of the Nifty 50 index weight.

"2QFY21 has been a blockbuster earnings season, with big beats on aggregates and improved management commentaries. Nifty profits for the 32 companies that have posted their results have grown 24% year on year (v/s exp. of 1% decline). On the other hand, for the 88 companies in the MOSL Universe, profit growth stood at 28% year on year (v/s exp of 1% decline). The breadth of earnings beat and consequent earnings upgrades has been the best in recent memory," the India Strategy Report by Motilal Oswal states.

What is driving the beat?

Sharper-than-expected underlying demand recovery in multiple sectors, even as the supply situation has been restored to normalcy.

Better-than-expected pricing power/realization.

Continued cost optimization initiatives

Lower-than-expected provisioning costs in Banking, Financials and Insurance.

"Corporate commentaries have turned better, with Consumer and Consumer Discretionary companies guiding for improved demand in the festive season, IT companies highlighting robust and growing deal pipelines, and BFSI demonstrating improved collection efficiency/ disbursement trends and guiding for controlled restructuring ahead," Motilal Oswal has said in its report.

According to the report private Banks have beaten expectations handsomely, with higher collection efficiency, uptick in loan growth, and healthy PCR.

"Consumer Companies have reported demand revival and volume growth in the quarter. Rural continues to outperform urban. Cost optimization has once again aided margins," the India Strategy report states.

According to the report the auto sector performance has been above expectations on account of lower loss in Tata Motors' results. Commentaries are, however, quite upbeat for the festive season.

Stock markets have already rallied a fair bit, as earnings for most companies have been better than expected. From lows of nearly 26,000 points seen in March, the Sensex is now well past the 40,000 points mark. While earlier it was IT and Reliance Industries that have led the rally, it is now banking stocks like ICICI Bank, Axis Bank and IndusInd Bank that are seeing a very good rally.