Which sector could emerge as a winner this earning season? Amnish Aggarwal answers
, Head, Research,
Prabhudas Lilladher
, says the Q1 earning season has been largely disappointing, with only a few banks performing well. Demand trends and stress on MSMEs and unsecured loans are evident, impacting financial performance. Consumer companies are unlikely to beat estimates, leading to potential earnings cuts. While select capital goods and commodity companies show promise, financials are underperforming, keeping markets in a narrow range.
It's a very range-bound market; on the upper end we have been at that 25,200 mark and the lower end is where we shut shop on Friday. Pretty uncertain times. Let's talk about the softness in earnings which is playing out. Other than ICICI Bank, I really do not see any big numbers in largecaps so far and of course, a few midcaps here and there. What do you think is going to emerge as the winner this earning season?
Amnish Aggarwal:
So far, the earning season has been very lacklustre. Barring a couple of banks which have done well, the majority of the companies have disappointed in Q1. If you look at the commentary of some of the companies like Kotak or Bajaj Finance – some of these financiers are the parameter of the economy – show that the demand trends and the stress on MSME or unsecured loans is very clearly visible.
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Secondly, on the demand side also, not many consumer companies have so far come out with results. But if you look broadly, I am not very confident that many of them will beat the estimates and for a large part of those companies, we will see some cut in earnings as we go along. Similarly, in these two baskets, except for some good numbers from select capital good stocks or commodity companies which have been showing better margins like cement, steel, etc, – the earning season so far has been very tepid and demand has failed to take off.
The biggest weight in all the indices is financials. There also things are not looking great and that is the reason why it is keeping markets in a very narrow zone.
What do you make of the pharma pack for now because the earnings were not that bad? Look at Dr Reddy's numbers. Even Cipla managed to surprise as did Laurus Lab where the experts have raised the target price, though the management has reiterated their FY26 outlook. What is your view on the pharma pack right now?
Amnish Aggarwal:
Traditionally FMCG, IT, and pharma have been considered defensives and as of now, only the pharma segment is doing better. There is reasonably good demand in the domestic and also on the overseas side. Some part of it might also be due to the fact that there might be some stocking ahead of the tariff announcement because there is a lot of tariff uncertainty. But having said that, as of now, within the defensive pack, pharma is standing out and in certain cases, the valuations might not be cheap but a select pharma stock could do well if it has number visibility.
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Where is demand headed right now in terms of staples and where could strength return to the sector?
Amnish Aggarwal:
As of now, it is quite uncertain and in Q1 also we had a favourable base and because of elections, a lot of uncertainty. Ut at the same time this year, monsoons came early, we had unseasonal rains happening throughout May in the entire Hindi heartland. That also spooked the growth to some extent not only in the consumer staples but also in some parts of durables.
So, the conditions could not have been better because the monsoon is normal, the interest rates have been cut and there has been some reduction in taxes. Inflation is running at around 2-2.5% with food inflation on the negative side, one could not hope for better conditions for the recovery. But having said that, it is not visible to that extent and slowly, as we go along, we will see commentaries suggesting more recovery happening during 2Q or during the festival season. So, some stress is visible on the unsecured side and on the MSME side. The premium segment, the segment which the well-to-do or the affluent sections are using, continue to do well. But the other segments remain under pressure and may say another quarter or more for the things to stabilise. But yes, on the macro side the conditions are right for the sector to start reporting better volume numbers.
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