According to the India Strategy report from Motilal Oswal Financial Services (MOFSL), MOFSL expect PBT/PAT for its Universe to grow 32%/27% YoY. Sequentially, PBT/PAT for the MOFSL Universe should grow 10%/13%. Earnings growth for 2QFY22 is expected to be driven by Metals, Technology, and Private Banks. These three sectors are likely to account for 86% of incremental PAT in 2QFY22 (v/s 2QFY21).
The Nifty crossed the 17k mark and the Sensex touched the 60k milestone - buoyed by the decline in COVID cases, a significant pickup in the pace of vaccination, and the consequent sharp recovery in economic activity. India ramped up its vaccine distribution, administering more than 920 million vaccine doses cumulatively. The country witnessed the third consecutive year of normal monsoon, with the southwest monsoon season ending 0.7% short of the long-period average.
MOFSL expect PBT/PAT to grow 32%/27% for the MOFSL Universe in 2QFY22: Even on a two-year basis, MOFSL PBT/PAT is likely to see a CAGR of 26%/23%.Metals, Technology, and Private Banks would contribute 86% to incremental PAT growth YoY. Ex-Metals, 2QFY22 MOFSL Universe earnings are expected to post modest 9% YoY growth and 11% CAGR over 2QFY20-2QFY22E. MOFSL Universe sales are likely to grow 25% YoY, led by demand revival and higher commodity prices. Metals, Technology, and Private Banks would contribute 86% to incremental PAT growth YoY. Nifty sales/EBITDA/PBT/PAT should grow 25%/20%/31%/25% YoY in 2QFY22E. Over 2QFY20-2QFY22E, the Nifty should post a sales/EBITDA/PBT/PAT CAGR of 8%/14%/22%/21%. The MOFSL Universe, ex-OMCs and Financials, is expected to post an 80bp YoY expansion in operating margins to 22.3%.
Nifty FY22E EPS estimates have seen minor tweaking to Rs 730 (prior: Rs 732) and Rs 874 (prior: Rs 865) for FY22 and FY23, respectively. FY22 earnings for Oil & Gas have seen upgrades on the back of higher crude and gas prices, offset by downgrades in Autos. Metals, BFSI, and Oil & Gas are likely to account for 34%, 25%, and 13% of the total incremental earnings, respectively, in FY22E.
Key model portfolio changes: MOFSL maintain OW stance on BFSI, IT, Metals, Cement, and Capital Goods, raise Consumer from Neutral to Overweight given the improving underlying demand backdrop and retain Neutral positions in Auto and Healthcare. While MOFSL maintain UW stance on Energy, they have reduced the extent of the UW position. In BFSI, MOFSL add IndusInd Bank, which is showing strong traction in advances. In Consumer, added Jubilant FoodWorks. In Midcaps, MOFSL introduce APL Apollo Tubes.
Top Picks:
Largecaps: ICICI Bank, SBI, Infosys, HCL Technologies, UltraTech, HUVR, Titan, Divi’s Labs, Hindalco, SBI Life.
Midcaps: Max Financials, SAIL, Deepak Nitrite, L&T Technology, APL Apollo Tubes, Chola Finance, JK Cements, Indian Hotels, Orient Electric, ABFRL.
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