India Equity Strategy – Quarterly flipbook: Q4 – a sturdy close to FY21 – HDFC Securities

Mr. Varun Lohchab, Institutional Analysis Analyst, HDFC Securities and Mr. Punit Bahlani, Institutional Study Analyst, HDFC Securities.

Q4FY21 earnings time finished a risky yr on a higher observe with +3.2%/+9.9% aggregate EBITDA/PAT conquer throughout the HSIE coverage universe (~190 shares), whilst aggregate revenues have been largely in line vs estimates. PAT beat was mostly led by vitality, substances, cement and non-lending BFSI (insurance and funds marketplaces) sectors even though autos and true estate sectors sent a miss.

Like in Q2 and Q3, in Q4 as perfectly, ~60% of our protection shares have overwhelmed estimates. Despite a muted outlook for 1HFY22 amidst the 2nd wave of COVID, earning estimates for FY22/FY23 were upgraded by +3.7%/+4.7% for the HSIE coverage universe. Earning upgrades ended up led by the power and chemical compounds sector. For the HSIE protection universe, FY22/FY23 earnings progress stands at 21/20%, write-up 34% YoY earnings progress in FY21, top to doubling of earnings over FY20-23.

Irrespective of a potent second COVID wave, Nifty consensus of FY22 EPS remains mostly unchanged due to the fact the impacted sectors have a small excess weight in mixture earnings this would not improve unless of course banking institutions see a content slice in earnings (which has not transpired so far as NPA estimates for large banking institutions never appear to be at a huge chance and provisions amongst large banking institutions keep on being adequate).

Nifty is trading at ~22x FY22 EPS, right after building in ~39% EPS development in FY22, which can occur through, aided by world-wide cyclicals and select significant banks. So, even though total EPS estimates are fewer at hazard in spite of the 2nd wave, the composition of earnings will change if superior PE sectors see earnings lower and reduced PE sectors see earnings updates.

We believe that it will keep on being a inventory pickers’ industry in FY22 with base-up beneficial risk-reward financial investment concepts however available across most sectors. Our preference is for mid/modest caps and financial system-struggling with sectors, which will profit as marketplaces start hunting at FY23 and over and above.

Our desired sectors continue to be huge banking companies, cement, infrastructure, gasoline, insurance and cash marketplaces, when we continue being underweight on use (staples, discretionary and autos), NBFCs, and smaller banking institutions.

Q4FY21 effects snapshot: General, it was one more sturdy quarter with margin-pushed beat throughout a number of sectors. In conditions of stocks, noteworthy earning upgrades ended up performed in Tata Motors, Bharat Forge, SBI Life, Wipro, ONGC, Apollo Hospitals, Max Fiscal, UTI AMC, Ahluwalia Contracts, HG Infra, Gateway Distriparks, Persistent Devices, CDSL, JK Lakshmi, Orient Cement, Vinati Organics, Sudarshan Chemical compounds, and Alkyl Amines.

Our check out: Index complete upsides capped bottom-up options even now obvious across sectors as financial restoration plays out in FY23. Though our sector desire has remained largely unchanged in the earlier 6 months, article the sharp rally of 100% from March 2020 lows and far more so inside of pick out mid/small caps, simple returns have been made. The overall economy-struggling with kinds like find banks, cement, infrastructure, serious estate, utilities, PSUs and gasoline stocks nonetheless have place for rerating though IT and pharma glance fairly valued with earnings-driven upsides. Customer staples and discretionary facial area PE derating hazards, provided stretched valuations.

Model portfolio: retain bias toward financial system-experiencing and worth sectors. We have been slicing weights in chemicals and IT sectors, post the sharp operate-up in decide on stocks. We add Tata Steel and CESC to the model portfolio, when we slice weights in Persistent, CDSL, and Gujarat Fuel.