Earnings season kicks off: Auto, Consumer Discretionary sectors may report tepid results; check top stock bets

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Published: July 10, 2019 3:24:06 PM

Even as earnings season kicks off with IT major TCS reporting Q1 results yesterday, stock market experts say that April-June quarter is likely to be another lacklustre period for Autos and Consumer Discretionary sectors.

Sensex, Sensex today, Sensex share, Sensex news, Tata Steel, NTPC , Bajaj Auto, HDFC Bank, Axis Bank, Hero MotoCorp, PowerGrid, Tata Motors, SBI, Yes Bank, Bharti Airtel, Maruti, HCL Tech, HUL, RILAccording to Motilal Oswal, the earnings-report season for the period will likely be a repeat of the Jan-Mar period, with financials driving the performance singlehandedly.

Even as earnings season kicks off with IT major TCS reporting Q1 results yesterday, stock market experts say that April-June quarter is likely to be another lacklustre period for Autos and Consumer Discretionary sectors. According to Motilal Oswal, the earnings-report season for the period will likely be a repeat of the Jan-Mar period, with financials driving the performance singlehandedly. “Corporate banks will account for entire growth in the Nifty and the broader MOFSL Universe’s earnings. Autos will have another lackluster quarter. IT sector profit growth will come off in this quarter. Consumer sector is also expected to report a muted quarter,” Motilal Oswal said in a report.

Also read: TCS share price slumps after Q1 results; should you buy or sell stock?

According to the brokerage firm the auto Universe is expected to report a 12% on-year decline in Profit After Tax on a weak base (13% YoY decline in base quarter) – a fifth consecutive quarter of double-digit PAT decline. Ex-Tata Motors, the Auto Universe is expected to post PAT decline of
18% YoY, noted the firm. “We expect EBITDA margins to shrink by 140bp YoY to 10.3%, impacted by weak operating leverage (volumes continue softening across the board in 1QFY20). 12/16 companies are expected to report a PAT decline,” said thre firm in a report.

The outlook for Consumer Discretionary space also looks bleak as the profits are expected to grow about 7.6% on-year on a strong base (base quarter profits grew by 19.6% YoY), with Asian Paints (-9% YoY), Emami (-15%). Page Industries (-15%) and United Breweries (-8%) expected to post degrowth, said Motilal Oswal. “Marico (31%), United Spirits (27%), Pidilite (11%), HUVR (11%) and Britannia (11%) are expected to post a strong set of numbers,” said the firm further. However, private Banks are expected to report another strong quarter (39% PAT growth), driving 44% of the entire PAT delta of the research firm’s universe. “Entire universe, barring IndusInd Bank, is expected to report strong earnings growth, with Axis Bank (135.8% YoY), ICICI Bank (Loss to Profit), Equitas Holdings (107% YoY) and AU Small Finance (44%) leading the pack,” noted Motilal Oswal. 

Sharing its top bets ahead of the results season, Motilal Oswal said that its top large-cap picks include ICICI Bank, SBI, HDFC, Bharti Airtel, L&T, Infosys, Maruti, NTPC, Coal India, Titan. “We stay overweight on corporate banks and remain positive on ICICI Bank and Axis Bank. We replace PNB with BOB in our model portfolio as higher provisioning expenses, weak capitalization levels and ongoing consolidation agenda remain a concern for PNB. BOB has been reporting a steady operating performance, and significant cleansing of Dena and Vijaya Bank’s balance sheet ahead of merger will facilitate a strong earnings recovery,” Motilal Oswal said in the report.

(Please consult your financial advisor before taking any investment related decision)

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