It is expected that the first quarter earnings for FY19 will reaffirm the underlying improvement in India’s earnings story amid a volatile global market environment. Earnings growth is likely to be 26 per cent for those being considered by Motilal Oswal in Q1FY19 and this will be led by global cyclicals, even as defensives post highest earnings growth in 15 quarters.

Earnings breadth is expected to improve, with only 21 per cent of those being considered by Motilal Oswal expected to post a year-on-year (YoY) decline in PAT, the best ever in decade. However, it is to be noted that Q1FY19 numbers are aided by a weak base (Q1FY18 was impacted by GST disruption). All sectors are expected to post double-digit growth, barring telecom, cement and PSU banks, with contribution of global cyclicals, domestic cyclicals and defensives to profits roughly equal in Q1FY19.

PAT is likely to grow 26 per cent YoY (6 per cent PAT decline in Q1FY18), driven by global cyclicals like metals, oil and gas and Coal India.

Global cyclicals are expected to post strong earnings growth of 54 per cent YoY and account for 65 per cent of YoY delta in MOSL Universe PAT.

Defensive are expected to post 14 per cent YoY PAT growth -- a 15-quarter high -- buoyed by IT (posting its first double-digit growth in nine quarters), utilities (9 per cent growth ex Coal India), healthcare (44 per cent growth) and consumer universe (22 per cent growth). Telecom (competitive intensity to stay elevated) is expected to continue draging defensives’ performance.

For Q1FY19, domestic cyclicals will report 23 per cent and 12 per cent growth in EBITDA and PAT, respectively, driven by autos and NBFC, whereas PSU banks and corporate-focused private banks would drag.

Nifty EPS unchanged for FY19/20: Nifty EPS estimates for FY19 and FY20 are stable at Rs 580 and Rs 694 v/s Rs 579 and Rs 693 earlier, respectively. We are now building in earnings growth of 26 per cent/20 per cent for the Nifty for FY19/20. For FY19, major earnings upgrades are in Dr. Reddy’s (22 per cent),Axis Bank (12 per cent), GAIL (+9 per cent),  Grasim (7 per cent) and Kotak Mahindra Bank (7 per cent), while the major earnings downgrades are in Vedanta (-17 per cent), Power Grid (-9 per cent), ICICI Bank (8 per cent), Hindalco (8 per cent) and Tata Motors (7 per cent). For FY20, the major earnings upgrades are in GAIL (21 per cent), Dr. Reddy's (+21 per cent), TCS (13 per cent), ONGC (11 per cent) and Kotak Mahindra Bank (10 per cent), while the major downgrades are Vedanta (18 per cent), Tata Motors (-15 per cent) and SBI (-13 per cent).

Source: Motilal Oswal