March quarter earnings for India Inc were visibly infected by the coronavirus pandemic. Although defensives did what was expected of them, other sectors saw a decline in profits surging up to double digits. Nifty 50 constituents were no different, suffering the same ill-fate as sales declined for the third-straight quarter. This was for the first time in 14 quarters that sales fell for three consecutive quarters, according to a research report by brokerage firm Motilal Oswal. Sales for Nifty 50 constituents fell 5.1% on-year basis after falling 1.6% and 2.4% in the previous two quarters.
The last time Nifty companies saw three-straight quarters of fall in sales was during the first three quarters of the financial year 2015-2016. Earnings before interest tax depreciation and amortization in the March quarter slipped 4.8% from the previous year, registering the first fall in 11 quarters. Similarly, profit after tax (PAT) nose-dived 20% to register a fall for the first time since the June quarter of the financial year 2018. “PAT was dragged by Autos, Oil, and Gas, Metals, Private Banks and NBFCs while select PSUs like Gail, SBI, and Power Grid provided some support,” the report said.
Motilal Oswal’s research showed that 31 of the 50 constituents of Nifty reported a PAT decline on-year basis in the March quarter. State Bank, GAIL, Shree Cement, Britannia, ICICI Bank, HDFC Bank, HCL Technologies are some of the companies that saw higher growth in net profits. Bharti Airtel, Tata Motors, BPCl, and Axis Bank reported a loss. “Defensives were the only segment to record positive earnings growth for the quarter with a modest 3% on-year increase,” the report said. In the March quarter, the share of Defensives profit increased to 41%, which is the highest since March 2018. Defensive sectors include healthcare, consumer, technology, utilities, and telecommunications.
Earnings were largely hit by the coronavirus pandemic. “Meanwhile, markets are looking beyond the financial year 2021, aided by global recovery and a gradual return to normalcy. Amidst the overall challenging macros, one silver lining is the ‘Rural’ economy, which has seen lesser damage from the COVID pandemic,” the report added. Among the preferred picks post the earning season for Motilal Oswal include Reliance Industries, Infosys, HUL, HDFC, ICICI Bank, Mahindra & Mahindra, and Bharti Airtel. In the MidCap space, the brokerage firm prefers L&T Infotech, Motherson Sumi, Tata Consumer, Gujarat gas, JSPL, Alkem Lab, among others.