Which stocks to bet on after Q2 result season? Top upgrades and downgrades

NEW DELHI: While most brokerages found the September quarter report above their expectations, financials turned out to be the smartest and commodity companies continued to see strong margin pressure.

Fueled by BFSI, Nifty profit rose 9% YoY in Q2 while the EBITDA grew 5.5% YoY.

"Net profits were 2.2% ahead of expectations, and EBITDA was in line with our expectations, excluding BPCL. We expect net profits of the Nifty50 index to grow 11% in FY2023 and 16% in FY2024," said Sanjeev Prasad of Kotak Institutional Equities.

For ICICI Securities, the BFSI space witnessed healthy earnings upgrades (led by corporate banks), while marginal upgrades were witnessed in the FMCG, IT and oil & gas space. Domestic brokerage firm Motilal Oswal has maintained an overweight stance on BFSI, auto, consumer & IT and an underweight stance on energy, pharma and utilities.

For Motilal, the top earnings upgrades were in Coal India, Axis Bank, SBI, Hindalco and Britannia, while earnings downgrades were seen in Tata Motors, Divi’s Labs, Asian Paints, Reliance Industries and Wipro.

Banks
Private banks saw 35% YoY growth in earnings, while PSU banks saw 51% YoY growth in earnings, said Sharekhan by BNP Paribas. Its top picks include ICICI Bank, Axis Bank, HDFC Bank, Kotak Mahindra Bank, Federal Bank and AU Small Finance Bank.

Among PSU banks, Sharekhan likes SBI, while global brokerage firm BofA Securities is bullish on Bank of Baroda. Elara Securities said SBI was ahead of its adjusted PAT estimates.

"Banks have reported strong NII growth, led by improving and better than expected NIM. Strong asset quality and adequate buffers have kept slippage pressure at bay," the brokerage said.

IT
Kotak expects FY23 net profits of IT companies in Nifty50 to grow 6.2% led by high single-digit to low double-digit revenue growth for all the companies, which would offset likely decline in EBIT margins in both the years.

For JM Financial, HCL Technologies and Infosys are top picks.

"We continue to play the sector selectively as we believe that relative growth differentials are here to stay with some companies likely to outperform industry/peers unlike the ‘Rising tide lifts all boats’ at play through CY20 and CY21," the brokerage said.

Auto
Kotak sees downside risks to earnings of domestic cyclical sectors such as automobiles and construction materials sectors from volume and/or profitability disappointments. Tata Motors could also see earnings downgrades from weaker-than-expected demand in its key markets of China and EU.

Motilal likes Maruti Suzuki and Ashok Leyland among OEMs and Bharat Forge and Apollo Tyres among auto component stocks.

Consumer
Motilal said the overall performance was majorly driven by value as volumes remained subdued on a higher base. Elara has upgraded ITC and Britannia, while Tata Consumer and HUL.

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