These 16 largecaps are analysts' picks post-Q2 earnings, do you own any?

The September quarter earnings cheered have cheered Dalal Street as upgrades outnumber downgrades by a mile.

The street expects single-digit growth in FY21 earnings due to the recovery in the September quarter and improved performance in the second half of the financial year. Earnings upgrades have been seen across brokerages, with analysts pegging FY22 earnings growth at around 30 percent.

"The September quarter (Q2FY21) corporate earnings season was a blockbuster one, with big beats and upgrades across our coverage universe. With an upgrade (>5 percent) to downgrade ratio (<-5 percent) of 4:1, this has, by far, been the best earnings season in many years. 63 percent of the companies in MOFSL coverage universe beat Q2FY21 estimates, while 18 percent reported below-estimated results. This has resulted in the first material earnings upgrade for Nifty EPS estimates in many years," Motilal Oswal said in a report.

Corporate commentaries across sectors suggested continued demand recovery in Q3FY21, underpinned by a healthy start to the festival season, the report said.

Key reasons for strong September quarter earnings were demand recovery after COVID-19 crisis, cost control measures and lower than expected provisioning cost for the bank and financial services and insurance (BFSI) segment.

"Q2FY21 adjusted net profits of Nifty50 increased 16.4 percent YoY versus our expectation of (-) 1.6 percent. Results have been better-than-expected reflecting stronger-than-expected volumes across sectors and lower-than-expected costs. We expect net profit of Nifty50 to grow by 9.6 percent in FY21 and 29 percent in FY22 versus pre-Q2 earnings season estimates of 2.5 percent for FY21 and 33.6 percent for FY22," Rusmik Oza, Executive Vice President (Head of Fundamental Research-PCG) at Kotak Securities told Moneycontrol.

Amnish Aggarwal of Prabhudas Lilladher also said the brokerage had estimated Nifty EPS growth of 5 percent for FY21, 33.4 percent for FY22 and 17.5 percent for FY23. "Our estimates are higher than consensus by 11 percent, 8.2 percent and 3 percent for FY21, FY22 and FY23, respectively," Aggarwal said.

Among sectors, cement, private banks, PSU banks, healthcare, oil & gas, technology and utilities reported YoY profit growth, while auto, capital goods, consumer, NBFC, and retail reported YoY declines, said Motilal Oswal, adding the telecom sector posted loss in the quarter ended September 2020.

A key thing to note is that brokerages upgraded ratings to "buy" for more than 100 stocks, especially after the September quarter earnings. The upgrade is not only restricted to largecaps but also midcap and smallcaps.

Brokerages selected 16 largecaps as their top picks after the earnings season. These are Reliance Industries, HDFC Bank, Infosys, ICICI Bank, Maruti Suzuki, Larsen & Toubro, UltraTech Cement, Britannia Industries, Dr Reddy's Labs, Hindustan Unilever, Bharti Airtel, State Bank of India, Titan Company, Divis Labs, Hero MotoCorp and Muthoot Finance.

Amongst these 16 stocks, Reliance Industries, Infosys and Muthoot Finance have turned multibaggers in the last eight months, while others gained 15-91 percent during the period.

"The best thing to happen with India incorporation is that earnings are coming without any strong volume growth. Over the last three years, earnings had disappointed due to poor GDP and revenue growth. This has led to underutilisation of capacities and no fresh Capex. A major part of free cash flows has gone in debt repayment and deleveraging. There has been a remarkable improvement in the debt-equity ratios of most companies and with lower bond yields the weighted average cost of capital has also gone down," Oza said.

"After getting a proper vaccine if global trade picks up, then we could see a structural growth phase led by healthy revenue growth. This can set the stage for a double-digit earnings growth in the coming few years as compared to low single-digit earnings growth seen in the past five years," he added.

The September quarter earnings along with improving economic data points, th egovernment's "Atmanirbhar " push to make India a major exporter and positive vaccine news brought the confidence at the desk of FIIs.

The foreign institutional investors poured in a record Rs 55,553 crore of funds in equities in November, taking the net FII buying in the current calendar year to Rs 96,766 crore. As a result, the benchmark indices rallied more than 70 percent to hit new highs this week, with the Nifty crossing the 13,000-mark for the first time.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.

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