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Economic Times
a day ago
- Business
- Economic Times
Which sectors will need a relook in terms of earnings projection now? Gautam Duggad explains
Gautam Duggad, Head Of Research, Director - Institutional Equities at Motilal Oswal Financial Services, says stock markets are reacting maturely to tariff impacts, with major sectors like financials and IT remaining relatively stable. Earnings growth is expected to be driven by domestic economic factors and a shift towards consumption-focused policies. While large sectors face limited growth, smaller sectors such as EMS and cement are projected to lead earnings, with pharma and consumer durables also contributing. ADVERTISEMENT Forget the overall exports and the impact of tariffs should they come in at 25% on various sectors. The oil risk where things settle down with Russia seems to be a bit of a niggling worry because it is going to have a bearing on marketing margins, etc, for us. Gautam Duggad: Absolutely, that is one of the most important commodities for us and it has a bearing on multiple macro parameters, current account deficit, inflation, and obviously consequently the interest rates in the economy. We will have to keep a close eye on where the crude oil settles. But in the last 10 years, barring that one- or two-month period when crude oil spiked up to $130-140 during the Russia-Ukraine crisis in early 2022, most of the last 10 years we have seen oil behaving in a tight range. That has helped us at the margin in so far as macro parameters are concerned. So yes, we will have to keep an eye on it, but there's very little we can predict and do about it till the time things settle down. Help us understand which sectors will now need a relook in terms of the earnings projection because for now, the chemicals and textiles are taking a bit of a hit on the stock prices as well. What is your analysis? Gautam Duggad: So, sectors which add very little to the overall earnings pool are getting hit. The three or four big sectors which contribute almost 65% to 70% of the earnings pool – financials, IT, consumption, auto, and to an extent utilities are not that directly impacted by this tariff related madness. Which is why we are seeing a very mature and a calibrated reaction by stock markets. Our earnings will be a function of two or three important things like how the domestic economy behaves as the after effects of rate cuts and income tax cuts along with improved liquidity and good monsoon take shape; whether we see a pickup in high frequency indicators in early September, October and whether consumption revives because after a long time government has changed its stance and started focusing away from capex towards consumption? Consumption has almost been dead so far as low ticket items are concerned. In fact, in our model portfolio, we have made consumer staple zero for the first time in the last 10 years. Our entire weight in consumption is allocated towards consumer discretionary. Third, particularly this quarter and this year too (FY26), smaller sectors are driving the 10% growth that we are talking about. For example, in this quarter, we are expecting private banks to report an earnings decline, PSU banks to post flat numbers and it obviously has done 5-6% growth which was expected. Consumer has shown zero growth, auto a slight bit of a decline because of a decline in some of the heavy OEMs like Tata Motors, Hyundai and Maruti. So, whatever 10-11% growth that we are pencilling in for this quarter as well as the full year is being led by EMS, and cement. Cement will have a rocking quarter as well as a year after a long time, but it is well expected. Then, pharma is going to post double digit earnings and a little bit of consumer durables and some other smaller sectors. All the big sectors' performance is going to be very limited both for this quarter as well as for the full year because the big tailwind in the asset quality that we have enjoyed in the financials between FY18 to FY25 when the backing BFSI profit pool in our coverage universe went from Rs 50,000 crore to almost Rs 5 lakh crore in seven years, seems to be settling at 10-12% growth which is broadly converging with your underlying credit growth in the economy and consumption. ADVERTISEMENT Till the time it picks up, we will have this very peculiar problem with the three big sectors – banks, consumption and also largecap IT. These three sectors put together account for 55-60% of the profit pool and they are not growing beyond 7-8%. Till the time one of these sector's earnings picks up, the index earnings are going to be maybe high-single digit or low-double digit. The real alpha therefore will accrue from stock picking and within the sector also, the dispersion of earnings growth is very high. For example, if you were positive on consumption for the last four years and had allocated in HUL and ITC, you made no money. Similarly, in IT, if you were positive and allocated towards largecap IT, you massively underperformed. This may sound like a pure bottom-up stock pickers market and therefore while your sector call can be right, unless the stock call is right, you'll end up underperforming even there. ADVERTISEMENT (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
a day ago
- Business
- Time of India
Which sectors will need a relook in terms of earnings projection now? Gautam Duggad explains
Gautam Duggad , Head Of Research, Director - Institutional Equities at Motilal Oswal Financial Services , says stock markets are reacting maturely to tariff impacts, with major sectors like financials and IT remaining relatively stable. Earnings growth is expected to be driven by domestic economic factors and a shift towards consumption-focused policies. While large sectors face limited growth, smaller sectors such as EMS and cement are projected to lead earnings, with pharma and consumer durables also contributing. Forget the overall exports and the impact of tariffs should they come in at 25% on various sectors. The oil risk where things settle down with Russia seems to be a bit of a niggling worry because it is going to have a bearing on marketing margins, etc, for us. Gautam Duggad: Absolutely, that is one of the most important commodities for us and it has a bearing on multiple macro parameters, current account deficit, inflation, and obviously consequently the interest rates in the economy. We will have to keep a close eye on where the crude oil settles. But in the last 10 years, barring that one- or two-month period when crude oil spiked up to $130-140 during the Russia-Ukraine crisis in early 2022, most of the last 10 years we have seen oil behaving in a tight range. That has helped us at the margin in so far as macro parameters are concerned. So yes, we will have to keep an eye on it, but there's very little we can predict and do about it till the time things settle down. 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What is your analysis? Gautam Duggad: So, sectors which add very little to the overall earnings pool are getting hit. The three or four big sectors which contribute almost 65% to 70% of the earnings pool – financials, IT, consumption, auto, and to an extent utilities are not that directly impacted by this tariff related madness. Which is why we are seeing a very mature and a calibrated reaction by stock markets. Our earnings will be a function of two or three important things like how the domestic economy behaves as the after effects of rate cuts and income tax cuts along with improved liquidity and good monsoon take shape; whether we see a pickup in high frequency indicators in early September, October and whether consumption revives because after a long time government has changed its stance and started focusing away from capex towards consumption? Consumption has almost been dead so far as low ticket items are concerned. In fact, in our model portfolio, we have made consumer staple zero for the first time in the last 10 years. Our entire weight in consumption is allocated towards consumer discretionary . Third, particularly this quarter and this year too (FY26), smaller sectors are driving the 10% growth that we are talking about. For example, in this quarter, we are expecting private banks to report an earnings decline, PSU banks to post flat numbers and it obviously has done 5-6% growth which was expected. Consumer has shown zero growth, auto a slight bit of a decline because of a decline in some of the heavy OEMs like Tata Motors, Hyundai and Maruti. Live Events You Might Also Like: Market taking 25% Trump tariff in its stride after initial knee-jerk reaction: Gautam Duggad So, whatever 10-11% growth that we are pencilling in for this quarter as well as the full year is being led by EMS, and cement. Cement will have a rocking quarter as well as a year after a long time, but it is well expected. Then, pharma is going to post double digit earnings and a little bit of consumer durables and some other smaller sectors. All the big sectors' performance is going to be very limited both for this quarter as well as for the full year because the big tailwind in the asset quality that we have enjoyed in the financials between FY18 to FY25 when the backing BFSI profit pool in our coverage universe went from Rs 50,000 crore to almost Rs 5 lakh crore in seven years, seems to be settling at 10-12% growth which is broadly converging with your underlying credit growth in the economy and consumption. Till the time it picks up, we will have this very peculiar problem with the three big sectors – banks, consumption and also largecap IT. These three sectors put together account for 55-60% of the profit pool and they are not growing beyond 7-8%. Till the time one of these sector's earnings picks up, the index earnings are going to be maybe high-single digit or low-double digit. The real alpha therefore will accrue from stock picking and within the sector also, the dispersion of earnings growth is very high. For example, if you were positive on consumption for the last four years and had allocated in HUL and ITC, you made no money. Similarly, in IT, if you were positive and allocated towards largecap IT, you massively underperformed. This may sound like a pure bottom-up stock pickers market and therefore while your sector call can be right, unless the stock call is right, you'll end up underperforming even there.
Economic Times
a day ago
- Business
- Economic Times
Market taking 25% Trump tariff in its stride after initial knee-jerk reaction: Gautam Duggad
Live Events (You can now subscribe to our (You can now subscribe to our ETMarkets WhatsApp channel , Head Of Research, Director - Institutional Equities at, says the market's reaction to the 25% tariff imposed on India by Trump is muted, with only a slight dip, as the full impact remains to be seen. While textiles face the brunt, sectors like pharma, metals, and IT remain largely unaffected. Despite a minor cut in forward earnings, overall earnings growth remains in line with and so far as tariffs is concerned, this news has been there for three-four months now. The reaction of the market is very muted, just half a percent down. So, I do not know how to look at it in the short term because a lot of things are still to unravel. I am sure the Indian government will also react. We have not seen the last of it yet given the way the US has repeatedly changed its stance on this matter. So, let us wait it out for a few days and see if there are more twists and sector-specific impact will be there depending on which sector gets hurt more. We do not cover textile, but clearly textile seems to be bearing the brunt of it. We will have to see what they do to pharma because as of now, pharma is not impacted, metals are not impacted, financials are not impacted, consumer is not impacted, IT is not impacted and cement is not impacted. Some indirect impact could be there for some of these sectors. It is very difficult to pencil in a specific quantifiable measure that post this tariff, X, Y, Z percent will be the impact on the earnings and this is how the PE will contract. That will evolve as we move 25% seems to be slightly higher than what most people have been working with. But the market is taking it in its own stride, given that this has become too recurring an issue now and the market has moved beyond some of these exogenous factors and people are focusing on the stock where things are in their control and looking at the portfolio from that point of view.I do not agree with the point that earnings have done nothing. So far 132 companies in our coverage have reported numbers. It is a 10% growth which is in line with expectations. Yes, the forward earnings have got cut by a percent, percent-and-a-half. So, while we were expecting about 11% Nifty EPS growth for FY26 when the quarter began when we published our preview three-four weeks back. As we speak, that 11% growth has come down to 9.5%. But there is too much of a narrative that earnings are bad. If you look at sector by sector, stock by stock, and then aggregated it, the numbers are in line with thing which we have learned repeatedly in the markets over the last decade-and-a-half is that the only thing the stock markets respect over a period of time is corporate earnings. FY20 to FY24, we added 20% plus corporate earnings growth , in fact 30% for Nifty 500. You saw phenomenal stock market returns depending on which index you look at. In the last one year, earnings growth has been absolutely tepid. FY25 saw flattish earnings in Nifty, 3-4% growth in broader markets and markets have done absolutely you look at point-to-point returns of the last 12 months, we have gone all over the place and ended up nowhere. Clearly all these factors – rump, tariffs, geopolitics, wars, other headwinds, will come and go. The only thing which will matter for the market from a one- to three-year perspective will be the corporate earnings. We are hopeful that this year will be slightly better than last the government and RBI have taken a series of measures on income tax cuts, rate cuts, and liquidity. So, let us see. After a couple of months, the tailwinds from those steps that the government and RBI have taken may manifest in better high frequency indicators with the advantage of a very good monsoon and festive season beginning to start from September. So, I would think that while valuations are expensive for midcaps and smallcap indices, the growth is also there in mid and year, while the broader markets grew at 3%, midcaps earnings in our coverage grew at 10%. This year we are pencilling in an 8-10% earnings growth for largecaps and 20% for midcaps. In our model portfolios, we have further increased the component and allocation of midcaps from 24% to 31%, and consequently, we have brought down the weightage of largecaps in our model portfolio across sectors.
Economic Times
18-07-2025
- Business
- Economic Times
Low earnings growth may prompt investors to move away from banks: Dhananjay Sinha
Tired of too many ads? Remove Ads , CEO and Co-Head Institutional Equities,, says the banking sector faces potential investor shift. Low earnings growth may prompt investors to seek sectors with stronger performance. HDFC Bank stands out with a better earnings trajectory. Structural tailwinds and cost optimization efforts are improving margins. The banking sector is currently focused on optimizing costs and overheads to enhance profitability. This strategic shift aims to navigate current economic stock prices have corrected recently, but this sector has demonstrated good performance in terms of operational matrix. There was concern with respect to the infra spending by the government. A certain amount of containment was there. In the recent past, the government has stepped up a lot of these spending which is supportive of the wires and cables industry . And this sector has been doing really well. The correction created an opportunity. So, wires and cables is a sector that most investors are betting on. So, every dip is something that people are actually using as an opportunity. And over the last several years, I would say, the sector has been doing operating performance of the banking sector shows there is a fall in the credit deposit ratio since the March levels which was at its peak. We have seen that credit growth has actually decelerated to somewhere around 9% or thereabout if you look at the overall system and there has been a sort of excess liquidity that has been there, and the RBI has also cut rates. So, the issue is all about the operating matrix and the way the banking sector can grow.A deceleration in credit growth is not very beneficial for the banking sector and with that, with liquidity being excess and RBI cutting rates, the pressure on margins would continue. I would say the earnings growth that we are projecting as a whole for the coverage company is working out to be somewhere around 1.7% year-on-year for the entire first quarter. That basically reflects there is a lack of other income support that is the fee-based income, quite apart from the fact that there is a margin compression. This is notwithstanding the fact that there was easing of the G-Sec yield and as a result, the yield curve may have given a trading profit for the banking sector as a whole. I would say that private banks had actually done well. There has been a significant revival in the investor interest in names such as HDFC Bank, Kotak Bank , etc, and even Bajaj Finance in the NBFC a certain amount of rally was there and, the fact that there was sort of some strengthening in rupee which has given some valuation benefit out there. Going forward, the operating matrix will be very relevant. If you have 1.7% earnings growth for the banking system, it has got a very large weightage in the index, so that is something that people might start to shave off a little bit. So, it is quite possible that investors might actually switch to some other sectors where earnings trajectory is relatively more resilient so that is the view on the banking sector, in our universe of coverage, HDFC Bank looks better in terms of earnings trajectory. There are certain structural tailwinds with respect to their cost of funds and with respect to them hiving off some of the low yielding assets. All that is improving the margins or at least creating tailwinds on the margins. Also, they are optimising on cost and stuff. The overall banking sector is in an optimisation mode. They are trying to draw a certain amount of profitability through optimisation of cost, overhead cost, and that is the view of the banking sector.
Time of India
18-07-2025
- Business
- Time of India
Low earnings growth may prompt investors to move away from banks: Dhananjay Sinha
Tired of too many ads? Remove Ads , CEO and Co-Head Institutional Equities,, says the banking sector faces potential investor shift. Low earnings growth may prompt investors to seek sectors with stronger performance. HDFC Bank stands out with a better earnings trajectory. Structural tailwinds and cost optimization efforts are improving margins. The banking sector is currently focused on optimizing costs and overheads to enhance profitability. This strategic shift aims to navigate current economic stock prices have corrected recently, but this sector has demonstrated good performance in terms of operational matrix. There was concern with respect to the infra spending by the government. A certain amount of containment was there. In the recent past, the government has stepped up a lot of these spending which is supportive of the wires and cables industry . And this sector has been doing really well. The correction created an opportunity. So, wires and cables is a sector that most investors are betting on. So, every dip is something that people are actually using as an opportunity. And over the last several years, I would say, the sector has been doing operating performance of the banking sector shows there is a fall in the credit deposit ratio since the March levels which was at its peak. We have seen that credit growth has actually decelerated to somewhere around 9% or thereabout if you look at the overall system and there has been a sort of excess liquidity that has been there, and the RBI has also cut rates. So, the issue is all about the operating matrix and the way the banking sector can grow.A deceleration in credit growth is not very beneficial for the banking sector and with that, with liquidity being excess and RBI cutting rates, the pressure on margins would continue. I would say the earnings growth that we are projecting as a whole for the coverage company is working out to be somewhere around 1.7% year-on-year for the entire first quarter. That basically reflects there is a lack of other income support that is the fee-based income, quite apart from the fact that there is a margin compression. This is notwithstanding the fact that there was easing of the G-Sec yield and as a result, the yield curve may have given a trading profit for the banking sector as a whole. I would say that private banks had actually done well. There has been a significant revival in the investor interest in names such as HDFC Bank, Kotak Bank , etc, and even Bajaj Finance in the NBFC a certain amount of rally was there and, the fact that there was sort of some strengthening in rupee which has given some valuation benefit out there. Going forward, the operating matrix will be very relevant. If you have 1.7% earnings growth for the banking system, it has got a very large weightage in the index, so that is something that people might start to shave off a little bit. So, it is quite possible that investors might actually switch to some other sectors where earnings trajectory is relatively more resilient so that is the view on the banking sector, in our universe of coverage, HDFC Bank looks better in terms of earnings trajectory. There are certain structural tailwinds with respect to their cost of funds and with respect to them hiving off some of the low yielding assets. All that is improving the margins or at least creating tailwinds on the margins. Also, they are optimising on cost and stuff. The overall banking sector is in an optimisation mode. They are trying to draw a certain amount of profitability through optimisation of cost, overhead cost, and that is the view of the banking sector.
