Q3 Earnings May See Limited Surprise, Say Gautam Duggad And Ashutosh Bhargava
“If FY22 earnings recovery holds out then the market still has more legs to run,” Duggad said.
India Inc.’s earnings in the second quarter surprised analysts with levels of growth unseen in years as the country gradually recovered from the Covid-19 crisis. While this recovery will continue in the third quarter, investors should not expect a similar surprise, according to Gautam Duggad.
“Q2 was unusual,” the head of research at Motilal Oswal Securities told BloombergQuint’s Niraj Shah in an interview. The July-September period saw a sharp, unexpected level of demand recovery, combined at a time variable costs were not back to pre-Covid levels, he said. “There was a surprise built into the P&L. Now going forward, the surprise may be limited.”
According to Ashutosh Bhargava, fund manager at Reliance Nippon Life Asset Management, part of the surprise in Q2 was because of the crisis. Over the last five-seven years, analysts have forecast earnings growth improvement at the start of a financial year, only to be disappointed and gradually lower their estimates over the year. This time around, expectations were low to begin with, he said.
Of the 43 Nifty 50 companies that have reported their second-quarter results so far, analysts have seen 22% earnings growth compared to an expected 2% decline. That has resulted in a slew of earnings upgrades across sectors.
“In the last 10 years, I have never seen this kind of sharp upgrades in the Nifty in a couple of months,” Bhargava said.
While the ongoing recovery is likely to result in sequential growth in the third quarter as well, the extent of growth remains to be seen, both Bhargava and Duggad said.
And at the same time, the game has now shifted to financial year 2021-22, according to Duggad. “If FY22 earnings recovery holds out then the market has more legs to run.”
Watch the full conversation here: