10 stocks that saw highest upgrades and downgrades after Q2 results

In their Q2 show, Adani Ports, ONGC, Dr Reddy’s Laboratories, Sun Pharma and State Bank of India managed to beat their adjusted profit after tax (PAT) estimates, noted domestic brokerage Elara Capital, while the biggest miss came from Tata Steel, Asian Paints, Larsen & Toubro, Power Grid and Tata Consumer.

Similarly, the highest FY23 PAT upgrade has been registered by Mahindra & Mahindra, SBI Life, ICICI Bank, Sun Pharma and HCL Technologies, among others, while those that posted the sharpest FY23 PAT downgrade are Tata Motors, JSW Steel, Tata Steel, Adani Ports, and Divi’s Laboratories, it said.

The brokerage estimated that Nifty PAT margin during the September quarter has trended down 348 bp YoY at 11.5% but is up 2 bp quarter-on-quarter (QoQ). The brokerage expects the margin to recover from Q3FY23, given continued correction in raw material prices during Q2FY23 and Q3 FY23TD across sectors coupled with easing off of high-cost inventory and continued price hikes by companies.

The brokerage maintained that India Inc's earnings momentum stood better compared to emerging peers and has resulted in increasing FII flows.

"Current earnings season also has demonstrated strength in domestic-oriented sectors as cracks emerge in the global economy. Although rural demand remains weak, we believe domestically-oriented sectors’ earnings will continue to hold, led by financials and steady urban demand. While peak range valuations in a tightening monetary policy environment may prevent any rerating of multiples, continued strength in earnings will provide downside protection, keeping markets range-bound in the near term," the brokerage report said. The brokerage, however, noted that the key risk to its call is sharp decline in the urban demand.

Key sectoral trends in Q2FY23
Information Technology: The brokerage believes that Q2 results have been broadly in line with a 2.5% beat on its aggregate PAT as well as EBITDA expectations. Most companies saw a beat on operating margins driven by a host of reasons, including wage cost moderation on variable pay, moderating attrition etc. "Earnings growth is expected to moderate for the sector as a whole as global growth slows, which is also reflected in fewer deal wins momentum, lower growth guidance by some firms barring HCL Tech, which raised its CC revenue growth expectations for FY23", the brokerage noted.

Financials: Banks reported strong NII growth, given the improving and better-than-expected NIMs. Strong asset quality as well as adequate buffers have kept slippage pressure at bay. Given the rising rate environment, the NIM outlook is strong for the next 2-3 quarters, and credit cost is expected to remain low, given adequate provisions. Also, as the credit demand continues to see a pick-up from the urban space, the outlook looks strong too, noted the brokerage.

Consumption-oriented sectors: The space registered margin expansion and posted 30% YoY sales growth and 32% YoY PAT growth, primarily led by the auto space with a low base. With continued correction in raw material prices and inventory costs coming off, the brokerage expects margin recovery to continue across the consumption universe.

These companies saw severe margin pressure given high-cost inventory with continuing marketing losses for OMCs. For the energy sector through PAT registered a 28% YoY decline, the results were a beat on its estimates, the brokerage noted. On the other hand, metals missed the brokerage's estimates by 54%, seeing about an 89% YoY decline in PAT.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)