Dalal Street expects strong H2 earnings growth in most sectors: Kotak

Kotak Institutional Equities in a fresh note on Nifty500 earnings, said the earnings outlook seems to have become better on aggregate over the past two months, especially for large and midcap companies, with earnings being broadly stable. It said the sectoral analysis of change in consensus earnings estimates suggests that the earnings stabilisation is led by modest upgrades in some of the larger sectors such as oil, gas & consumable fuels, banks, metals & mining and IT services.

Kotak said the Dalal Street is expecting strong earnings growth in a large number of sectors in the second half of the ongoing financial year (H2FY26 or December & March quarters).

The domestic brokerage said the September quarter results of the Nifty 500 companies showed that the broader universe continued to struggle with modest revenue growth of 6 per cent on year-on-year (YoY) basis. That said, combined Ebitda for the companies grew 17 per cent YoY, while PAT also jumped 15 per cent YoY.

"Metals and oil, gas & consumable fuels drove the strong YoY growth in Ebitda and PAT in aggregate; Ebitda and PAT growth was around 8 per cent YoY, excluding them. Interestingly, quarterly PAT levels have been stagnant around Rs 3.6 lakh crore for six quarters. Nonetheless, there were signs of improvement with 17/30 sectors reporting double-digit sales growth," Kotak said.

Kotak said the contribution of the top-100 companies to revenues of the Nifty 500 Index universe has remained stable at around 70 per cent, while the contribution to PAT has moderated to 73 per cent. Sales growth, it said, remained weak across market caps, even as midcap and smallcap companies delivered strong Ebitda and PAT growths.

"We note that a weak base aided strong PAT growth for 10/19 midcap sectors and 7/14 smallcap sectors," it said.