Analysts expect muted YoY performance in Q2FY21 from India Inc

As the market gears up for Indic Inc to unveil its operational and financial performance for the second quarter of fiscal 2020-21 (Q2FY21) this week, most analysts expect a healthy rise in profit after tax (PAT) and revenue on a sequential basis. While the first quarter of the current fiscal (Q1FY21) was marred by the stringent nation-wide lockdown to stem the spread of Covid-19, Q2FY21 numbers will appear optically better on a sequential basis as economic activity gradually resumed between July – September 2021 and businesses emerged from lockdown.

“Sequentially, we expect profit of BSE-30 Index and Nifty-50 Index to increase 32 per cent and 52 per cent on account of sharp increase in economic activity reflecting easing of lockdown restrictions in Q2FY21. On a YoY basis, we expect net profit of the BSE-30 Index to decline 1.3 per cent and that of the Nifty-50 Index to increase 0.6 per cent. We estimate earnings per share (EPS) of the BSE-30 Index at Rs 1,555 for FY21 and Rs 2,028 for FY22 and of the Nifty-50 Index at Rs 453 for FY21 and Rs 606 for FY22,” wrote Sanjeev Prasad, co-head, Kotak Institutional Equities in an October 7 note co-authored with Sunita Baldawa and Anindya Bhowmik.

For companies under their active coverage, which they call Kotak Institutional Equities’ (KIE) universe, they see 16 per cent year-on-year (YoY) rise in Q2FY21 net profit led by banks (low slippages), IT services (reasonable demand trends across large verticals), metals & mining (increase in realisation) and pharma (recovery in US revenues). Sequentially, they peg the rise in net profit of KIE universe at a huge 69 per cent.

Except fast moving consumer goods (FMCG), pharma, information technology (IT) and to some extent telecom, G Chokkalingam, founder and chief investment officer at Equinomics Research expects PAT to dip 8 – 10 per cent YoY at an aggregate level for the remaining sectors. “Airlines, hotels and cinemas will continue to bleed in Q2FY21 as well, as their operations remained hampered. Sequentially, there can be around 5 – 10 per cent uptick in PAT at an aggregate level given the low base of Q1FY21,” Chokkalingam said.

“On a YoY basis, we have to keep expectations subdued on an overall basis. This is because of the fact that in Q2, India’s GDP is expected to fall anywhere between 8 to 11 per cent on a YoY basis post 23.9 per cent fall in Q1. Though revenues could fall YoY due to lower volumes and soft commodity prices, margins could see an uptick due to lower raw material costs, aggressive cost control measures and lower tax rate,” cautions Deepak Jasani, head of retail research at HDFC Securities.

Mid-and small-cap companies, Jasani says, could continue to face challenges at a time when the activity levels have not reached normal and fund availability remains constrained. “However, select companies in sectors like chemicals, Pharma, IT services, Cement, Metals, could still perform well due to demand conditions being favourable and commodity prices being benign,” he feels.

At YES Securities, their lead analyst, Hitesh Jain, has pegged the YoY profit growth for Nifty 50 (ex-financials) at 9.1 per cent and at 78.8 per cent QoQ. At the PAT level, he forecasts a growth of 4.6 per cent YoY and 164 per cent QoQ.

As regards the financial sector, analysts at Credit Suisse expect the management commentary on asset quality to turn more positive given a recent pick-up in collections. Also, as moratorium was in place till August-end, non-performing loan (NPL) slippages are likely to be low and provisioning will be primarily to raise provision buffers.

“We expect most banks to raise provision coverage ratio (PCR) on existing NPLs to over 70 per cent and add 0.2 – 0.5 per cent fresh provisions to Covid-19 buffer. We expect sharpest reduction in quarter-on-quarter (QoQ) provisions at ICICI Bank. HDFC Bank is likely to report strongest, around 18 per cent earnings growth. Smaller banks are expected to report improved deposit growth,” says Ashish Gupta, an analyst tracking the sector at Credit Suisse.

Markets during the period under review have seen a healthy rise with the S&P Sensex and the Nifty 50 rallying 9 per cent. Mid-and small-cap indices, on the other hand, have outperformed during this period with a rise of 12.6 per cent and 20 per cent, respectively.