Men look up at an electronic ticker board that indicates stock figures at the BSE in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

How Motilal Oswal Expects Q2 Earnings Season To Pan Out

Indian equities have lost their yearly gains but the correction is far from over. That's according to Gautam Duggad, head of research at Motilal Oswal Financial Services Ltd. The reason: 1) stocks remain expensive and 2) expectations of lukewarm earnings season.

“We are in an environment where the cost of capital is rising," Duggad told BloombergQuint. That has meant the spread between earnings and bond yields is almost at a decade high. "As things stand, between the two, bond yields are likely to sustain given the inflation and fiscal deficit."

The correction in earnings yields will be market determined as earnings surprises are not coming through, he said.

Here are some of Duggad's Q2 earnings expectations for various sectors:

Information Technology

The September quarter for information technology companies will be stellar, said Duggad. “It’s seasonally one of the strongest quarters for them. Also, they have tailwinds from the rupee depreciation.”

Key Highlights

  • Expects earnings growth of 18 percent from the IT universe.
  • Mid-cap IT companies will outperform and we are expecting a 40 percent earnings growth for them.
  • Some stocks are approaching valuations which are at the higher end of their trading band.
  • IT sector will make up one-thirds of incremental earnings contribution. Other two-thirds will be from metals and oil & natural gas.
  • Top Picks: Tech Mahindra, Mindtree


Tightening of liquidity for non-banking financial companies have added to carmakers’ higher input costs induced by inflation, Duggad said.

Key Highlights

  • Expects more than 50 percent earnings growth for Ashok Leyland. The brokerage also replaced Bajaj Auto with Ashok Leyland in its model portfolio.
  • Other Picks: Maruti Suzuki

Fast-Moving Consumer Goods

Commodity cost is the biggest risk for the consumer goods sector, according to Duggad. “One has to watch out for the pricing power of different companies and their ability to pass on the hike in input costs to consumers without affecting volumes.”

Key Highlights

  • Expects 14-15 percent Ebitda growth.
  • The recovery in rural markets witnessed for last six quarters to continue.
  • Top Picks: Hindustan Unilever, Titan, Britannia Industries, Pidilite Industries


Duggad expects the financial sector to contribute 45 percent to the incremental earnings growth of all the stocks in the brokerage’s portfolio.

Key Highlights

  • Good opportunity for high-quality banks with strong current account savings account ratios and liability franchise.
  • Management issues are behind for private banks and bad asset cycle is nearing completion; They are trading at cheap valuations.
  • Top Picks: HDFC Ltd., Axis Bank, RBL Bank

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