The September quarter earnings season, which begins October 9 with TCS announcing its Q2 numbers, is likely to be modest with 6% year-on-year earnings growth for Nifty companies, according to estimates by domestic brokerage Motilal Oswal. But three investment themes — a divergence between financials and IT, consumption revival, and new-age sectors — offer money-making opportunities, the brokerage said.
Motilal Oswal upgraded automobiles to overweight from neutral and named Bharti Airtel, ICICI Bank, Larsen & Toubro, Mahindra & Mahindra, Ultratech Cement, Titan Company, Max Healthcare, Bharat Electronics, Tech Mahindra, TVS Motors, Macrotech, and Indian Hotels as its top large-cap ideas. In mid and small-caps, the brokerage likes Dixon Technologies, SRF, Suzlon Energy, Jindal Stainless, Coforge, Supreme Industries, Page Industries, Kaynes Tech, Radico Khaitan, VIP Industries, UTI AMC, Swiggy, and Niva Bupa Health.
“ExFinancials, we expect earnings to increase 16%/10% YoY, whereas ex-Metals and O&G, we project the earnings to rise 6%/4% YoY for the quarter,” Motilal Oswal said. “The overall earnings growth is expected to be modest and will be anchored by O&G (+25% YoY), NBFC-Lending (+21%), Telecom (loss-to-profit), Metals (+10%), Technology (+6%), Cement (+62%), Capital Goods (+14%), and Healthcare (+10%).”
These sectors are likely to contribute 95% of the incremental year-on-year accretion in earnings. Conversely, both private banks and public sector banks are likely to contribute adversely to earnings, with both segments expected to decline 7%.
The brokerage cut its FY26E/FY27E Nifty EPS by 1.1%/1.7% and expects it to grow 8%/16% year-on-year to Rs 1,096/Rs 1,274. “Further, we expect FY26 earnings to grow 12% YoY and 9% YoY for the MOFSL Universe and Nifty-50, respectively. FY26 earnings, ex-Financials, are projected to rise 15% YoY and 11% YoY,” the brokerage said. The metals, cement, BFSI, auto, and technology sectors have contributed to the majority of the reduction in earnings estimates.
Three Investment Themes
Motilal Oswal outlined three key investment themes for investors to align their portfolios:
1. Divergence Between Financials and IT Services
“We are witnessing divergence in the prospects of two of the largest sectors, Financials and IT services,” the brokerage said. Within financials, while non-lending names have done well in the past few years, banks were beset by slowing growth and rising credit costs. “However, we now expect banks to start posting growth from H2FY26 onwards, driven by NIM expansion and higher credit growth as the credit impulse improves on the back of multiple government measures, making a stronger structural case for banks.”
The non-lenders, especially the capital market names, remain a long-term structural play on rising financialization and equitization of savings.
In contrast, IT services are experiencing a slowdown in demand growth from their primary market, the US, while the transitional phase of generative AI adoption is expected to delay clarity regarding service growth.
2. Consumption Revival
“The government, after taking cognisance of the need to stimulate consumption, has embarked on a policy overdrive to announce measures that can drive higher consumption growth,” Motilal Oswal said. “We believe that all the measures put together will have a synergistic impact on demand and drive an uptick in consumption names, along with any derivative of consumption, such as retail lenders, logistics providers, et al.”
3. New-Age Themes
While growth has remained a favourite theme for Indian investors, the market has now broadened enough to offer a reasonably wider choice of investable universe. “Many new-age themes have cropped up in the past few years, and we recommend strong overweight in some of these themes, such as quick commerce, renewable energy, mobile app ecosystem-based business models, etc.,” the brokerage said.
At Motilal Oswal, the coverage has expanded to include 331 companies, with several new additions in emerging themes such as quick commerce, renewables, data centres, high-end discretionary consumption, ER&D, and more.
Sector Views
The brokerage’s key overweight sectors are autos, industrials, healthcare, BFSI, and consumer discretionary, while it is underweight on oil & gas, cement, and metals.
“Our model portfolio broadly reflects our preference for growth visibility and domestically focused plays in a still-strained global environment. We anticipate a gradual recovery in earnings by FY26, and we marginally raise our weights in domestic names,” Motilal Oswal said.
(Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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