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A washout quarter? MOSL expects Nifty earnings to fall 41% in Q1. Here are its top picks

A washout quarter? MOSL expects Nifty earnings to fall 41% in Q1. Here are its top picks

A washout quarter? MOSL expects Nifty earnings to fall 41% in Q1. Here are its top picks
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By Pranati Deva  Jul 13, 2020 3:33:55 PM IST (Published)

The Nifty is likely to witness a 41 percent earnings decline in the June quarter (Q1FY21) with most key sectors posting losses, Motilal Oswal (MOSL) said in a recent earnings preview report. Nifty sales are estimated to decline 30 percent YoY, while EBITDA may fall 18 percent, according to the report.

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However, it expects the remaining quarters of FY21 to show gradual improvements QoQ.
Overall, 1QFY21 should be a complete washout for most sectors with auto, metals, retail and capital goods expected to post losses while cement, oil & gas, consumer goods and utilities likely to see a double-digit decline in profits, noted the brokerage.
On the other hand, earnings should see some support from banks and technology space which are expected to post modest YoY growth in profits. Pharma is expected to post a small 5 percent fall in profit, it added.
Excluding OMCs, the Nifty growth is likely to decline 50 percent in Q1, stated the report.
"More than the 1QFY21 earnings, we would like to focus on the corporate commentary around the rapidly evolving situation on the ground especially demand and supply chain equation," MOSL further noted.
It also mentioned that earnings breadth is likely to remain extremely weak with 80 percent stocks in its coverage expected to post YoY decline in PAT.
On the EPS front, it said that FY21E and FY22E Nifty EPS estimates
have seen a modest upward revision of 3 percent and 1.5 percent, respectively.
Given the uncertainty and unprecedented nature of the crisis, MOSL believes earnings estimates would remain volatile in the near term with the risks to earnings estimates remaining on the downside.
PORTFOLIO STRATEGY
The brokerage has made some changes in its portfolio keeping the poor earnings expectations in the June quarter.
It has raised the weight of IT and telecom further, adding Bharti Airtel and Infosys (100 bps each) and made 200 bps addition to TCS and HUL. Taking advantage of the recent sharp-up move in automobile stocks, it replaced Maruti and Eicher Motors with M&M and Motherson Sumi, respectively. MOSL has also introduced Dabur into its model portfolio after the recent rating upgrade. In mid-caps, it has added Coromandel and Gujarat Gas to its portfolio.
Top Picks
Largecaps: Reliance, ICICI Bank, Bharti Airtel, M&M, Dabur, Infosys, HUL, HDFC.
Midcaps: Tata Consumer, ICICI Securities, Alkem, LT Infotech, Gujarat Gas, Motherson Sumi.
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