The December quarter earnings season continue to beat street estimates and are expected to maintain an upward trajectory going forward. A bunch of 42 stocks of Nifty 50, whose results have been declared, saw a 3 per cent decline in their net sales on a year-on-year (y-o-y) basis, but have grown sequentially at 12 per cent. Around 13 companies, including a handful of oil and gas stocks such as Bharat Petroleum Corp and Indian Oil Corp have seen a contraction in their revenues on a standalone basis. The Nifty 50 pack registered a much sharper fall of 8.5 per cent in net sales in the second quarter of FY21.
According to Gaurav Garg, Head of Research at CapitalVia Global Research, "There is clear stabilisation being restored in the economy and with the business gaining traction, the top line is expected to grow on q-o-q basis. With the revival of economic activities, the firms are expected to enhance their capacities in the coming months. Increased operations and augmented capacity have been major reasons which have helped most of the companies post better than expected results. The Budget has been quite accommodative one and with expansionary monetary policy in place the top-line growth is very much possible."
Net profit for the sample expanded 8.2 per cent on yearly basis with 71 per cent companies clocking healthier bottom-line numbers. These include Asian Paints with 56.5 per cent rise, L&T (50.3 per cent) and Tech Mahindra (36.1 per cent). Though, on aggregate basis, it remained almost flat at Rs 83,202 crore compared to September 2020. The earnings in the previous quarter surprised most of the investors on low expectations amid strict lockdown measures and limited economic activity.
"However, if we consider the difference in the expectations versus actual results, Q2 can be overweighed in comparison to Q3 and hence might seem to be spectacular," opines Garg.
Exclusion of BFSI companies from the basket catapulted the profits growth to 25 per cent. The combined profits (standalone) of banking and financial services firms declined almost 16 per cent, largely dragged by Housing Development Finance Corporation (-65 per cent), Axis Bank (-36.4 per cent) and Indusind Bank (-34.4 per cent).
On expenses front, there was a contraction of 1.6 per cent against a massive 14.6 per cent fall in Q2 (for the Nifty 50 companies). "With normalcy in economy being restored and rising demand, it might be futile for corporates to do cost savings just to boost the earnings. Cost savings as part of operations is as per the discretion of the management. Corporates might now focus on reviving their business and income growth for sustainable growth," he adds.
The earnings season seems to be entering into an expansionary phase as economy is returning to normalcy and the disrupted supply chain due to the pandemic appears to be back on track.
"Also, the government measures taken to boost the consumption growth have buoyed investors and aided the economy. Going ahead, the earnings of the companies seem to maintain an upward trajectory as there is no major factor which suggests the contrary," adds Garg.