The hopes of revival in earnings growth is getting diminished by each passing quarter. The September quarter numbers from India Inc were nothing but a testament of the fact that the on-ground reality is still far from estimates the Street is working with.
Downgrades in earnings estimates are happening and any reversal is unlikely in the near future.
Brokerage Prabhudas Lilladher has revised downward Nifty's earnings per share for the FY2016 to Rs 414.20 from the earlier estimates of Rs 429.80 and the fiscal year 2017 estimates to Rs 501.60 from Rs 515.60.
And there was no surprise. The September quarter ended on a tepid note, extending the weak trend that has now lasted for more than two years. Data showed while revenues for Nifty50 companies fell 5 per cent year-on-year (y-o-y). EBITDA, despite all the talks of fall in commodity prices, was up mere 2 per cent.
"There has been a slew of downward revisions in earnings estimates especially from the large infrastructure companies. While IT companies in general came out with a better performance during the quarter, they were cautious in their guidance for second half. FMCG companies have seen volumes slow down, the rural growth rates have slowed down to the levels of urban growth and pharma companies have come out with performances below the estimates as well," said Prabhudas Liladhar in a research note.
"The equity market is trading at a one year forward multiple of 17.7x, still at a marginal premium to the 10 year average. This is mainly on account of downward revision of FY16 earnings," added brokerage.
The brokerage expects Nifty to trade in the range of 7500-8200 levels, given the current headwinds in terms of politics and the probable Fed rate hike in December.
"We are maintaining our 12 month Nifty target down to 8800-9000 levels. We continue to remain overweight in Financial services, while remaining neutral in IT, Automobiles, FMCG, Healthcare and Engineering &Capital Goods and underweight Metals," it added.
Here are top 10 stock picks by brokerages to bet on post September quarter earnings:
1) Aurobindo Pharma (target Rs 980)
The brokerage expects second half of the fiscal year 2016 to be better than first half on the back of increased business from approved products as well as new approvals expected in 2HFY16.
IndiaNivesh expects an upside of 20 per cent on the stock against Thursday's closing price of Rs 817.35.
2) Capital First (target Rs 468)
The brokerage believe the current growth momentum of the company will continue over near to medium term due to the company's prudent management practices, focused retail lending approach, quicker turnaround time and
healthy adequacy position.
"Loan growth in two wheeler and consumer durable business continues to remain strong. CFL has invested appropriately in technology and other related resources to ensure faster and effective resolution of lending proposals which gives the company an edge over competitors," said brokerage.
IndiaNivesh expects an upside of 23 per cent on the stock against Thursday's closing price of Rs 380.65.
3) Coal India (target Rs 467)
IndiaNivesh believes the company has a strong balance sheet, with cash equivalents of Rs 61800 crore (Rs 98/share) at end of H1FY16. The company has dividend payout ratio of near 100 per cent in previous two years, which will continue to remain healthy.
The brokerage expects an upside of over 28 per cent on the stock against Thursday's closing price of Rs 333.75.
4) Reliance Industries (target Rs 1300)
RIL is in the midst of executing its largest ever capex plans in core and non-core businesses. The brokerage expects the earnings growth trigger to play out in FY17, when its large core projects get commissioned.
The broking firm expects an upside of over 39 per cent on the stock against Thursday's closing price of Rs 934.20.
5) State Bank of India (target Rs 370)
The brokerage believes SBI is likely to qualify for capital infusion in next round of capital infusion based on operating performance as stated in recent reforms Indradhanush.
"SBI remains our top pick in public sector banking space as it remains the biggest beneficiary of revival in economy," said IndiaNivesh.
The broking firm expects an upside of 52 per cent on the stock against Thursday's closing price of Rs 243.85.
1) HDFC Bank (target Rs 1,200)
"HDFC Bank has indicated healthy loan growth prospects on underlying improvement in product segments where it is gaining market share and benefitting from increased distribution presence," said Prabhudas Liladhar in a research note.
The brokerage maintains earnings estimates on the stock and 'buy' rating with a target price of Rs 1,200. It expects an upside of 12 per cent on the stock against Thursday's closing price of Rs 1068.55.
2) Infosys (target Rs 1,440)
The brokerage believes that ramp-up of large deal wins in 1HFY16 and the benefits from new initiatives will partly offset the impact of the traditional H2 seasonality.
"In our view, Infosys is on track to beat FY16 guidance and exit 4QFY16 with industry growth. We expect Infosys to return to industry growth by FY17," said Prabhudas Liladhar.
The broking firm retained 'buy' on the stock with a target price of Rs 1,440. It expects an upside of over 37 per cent on the stock against Thursday's closing price of Rs 1047.30.
3) Cummins India (target Rs 1,175)
Cummins continues to be the best franchise in the Capital goods space. The brokerage retains positive outlook on the company, given the strong ramp-up in exports and likely improvement in market position, post changes in emission norms. Low capitalization utilization of 50-60% also leaves upside surprise on margin once volumes improve.
The brokerage maintains 'buy' on the stock with a target price of Rs 1,175. It expects an upside of 18 per cent on the stock against Thursday's closing price of Rs 998.20.
4) NIIT Technologies (target Rs 625)
"After a great Q2 performance, NIIT Tech expects further margin improvement in H2FY16, which should support earnings upgrade. After a tepid performance in FY15, the company is coming back on track. We retain our 'buy' rating on the stock," said brokerage.
Broking firm expects an upside of 3 per cent on the stock against Thursday's closing price of Rs 607.20.
5) Tata Motors (target Rs 515)
"Expectation of improved JLR sales in China in CY16, ramp-up of new models like XE and Discovery Sport in global markets, improved CV demand in India, and attractive valuations render Tata Motors a compelling Buy," said Prabhudas Liladhar
The brokerage maintains 'buy' on the stock with a target price of Rs 515. It expects an upside of over 26 per cent on the stock against Thursday's closing price of Rs 407.15.