Second quarter was the best earnings season across sectors in many years

Corporate commentaries across the sector suggest continued demand recovery in Q3, underpinned by a healthy start to the festive season

The September quarter's (2QFY21) corporate earnings season was a blockbuster with big beats and upgrades across sectors.

According to a report by Motilal Oswal Institutional Equities, wiith an upgrade (more than 5 per cent) to downgrade ratio (less than 5 per cent) of 4:1, this has by far been the best earnings season in many years.

"As many as 63 per cent of the companies in our coverage universe beat 2QFY21 estimates, while 18 per cent reported below estimate results. This has resulted in the first material earnings upgrade for Nifty EPS estimates in many years," the report said.

More importantly, corporate commentaries across the sector suggest continued demand recovery in 3QFY21, underpinned by a healthy start to the festive season.

While sales growth was in-line, better-than-expected demand recovery, continued cost control measures, and lower-than-expected provisioning costs for the BFSI segment drove a spectacular profit beat. Cement, private banks, PSU banks, healthcare, oil and gas, technology, and utilities reported year-on-year profit growth, while auto, capital goods, consumer, NBFC, and retail reported YoY declines. The telecom sector posted a loss.

The report said QFY21 corporate earnings were a broad-based beat, leading to significant upgrades in earnings estimates. Better-than-expected demand recovery and continued cost control initiatives were the key highlights of the quarter.

The BFSI earnings were particularly strong, with commentaries from large private sector banks indicating that the stress on asset quality may not be as bad as initially feared, although banks continue to increase provisions for Covid-related stress. Economic recovery continued, with high-frequency data for October coming in fairly strong (GST collections, manufacturing PMI, rail freight, power demand and IIP).

Early trends from the festive season suggest continued demand recovery. However, after the 68 per cent rebound from March lows, Nifty valuations are no longer cheap, the report said.