Accordingly, MOFSL has placed BFSI, IT, metals, and cement in the 'OW' (overweight) category in its model portfolio.

Besides, it has placed consumer, auto, healthcare, and capital goods in 'Neutral' category and 'UW' (underweight) on O&G and infrastructure sectors.

"Corporate earnings in 4QFY21 were led by cyclicals and a combination of low base and strong demand revival as economic activity improved. Corporate India displayed tremendous resilience in FY21, with the Nifty ending the year with a healthy (14 per cent) earnings growth, which was unthinkable a year back," the report said.

"The second Covid wave in April-May, 2021 has soured sentiments and impacted economic activity. Since the restrictions this time were localized and less stringent versus the lockdown in CY20, we expect the impact in 1QFY22 to be contained."

According to the report, earnings momentum is expected to accelerate in FY22 as the pace of vaccinations picks up and the economy opens up further.

"BFSI and commodities are expected to drive FY22E earnings. The market has been strong and largely looked through the second Covid wave on the back of strong liquidity and robust participation from non-institutional investors."

"The recent commentary by the (US) Fed on earlier than anticipated tapering and India's elevated CPI print have rattled some nerves, even as equity-bond yield dynamics are not showing any red flags."

As per statement, Nifty valuations at '21x FY22E EPS' are rich and demand consistent earnings delivery ahead.

"Corporate earnings in the last quarter of FY21 continued the momentum of the preceding two quarters and ended the year on a good note, aided by the deflated base in 4QFY20 and healthy demand recovery for a large part of 4QFY21."

"However, 1QFY22 has seen a familiar disruption, with the second COVID wave engulfing India and several states imposing lockdowns in Apr'21 and May'21."

In addition, the trend of earnings revision has changed in favor of downgrades again in 4QFY21 after two consecutive quarters (2Q and 3QFY21) of upgrades.

"The downgrade-to-upgrade ratio stood at 1.6:1. The second COVID wave peaked in May'21 and active cases are currently 80 per cent below its peak."

"Daily cases are trending at a three-month low. With the pace of vaccinations picking up and states unlocking again, confidence is gradually returning in corporate commentaries as we exit 1QFY22."