The rise in profits for most of these companies is expected to come on the back of strong domestic demand. On the other hand, technology stocks are expected to report muted growth, analysts said.
Motilal Oswal Financial Services predicts that the 50 companies that form the Nifty index will report 21% earnings growth in Q2 while Kotak Institutional Equity expects this growth rate to be 24%.
Mid-cap companies under MOFSL’s coverage together are expected to report a 104% growth in earnings while the corresponding number for the small-caps is 130%. However, due to the sharp outperformance of mid- and small-caps and expensive valuations, analysts at MOFSL didn’t raise weights further on stocks from these categories.
Among the sectors, banks are likely to have relatively weak operating profit growth, but earnings growth still has strong support from lower provisions, a Kotak report said. “The provisional business data released by a cross-section of banks suggest that loans and deposit growth have held up well.”
Most NBFCs are expected to deliver strong quarter-on-quarter loan growth, as momentum in disbursement is continuing and companies add new business lines. Margins will likely compress further, as borrowing costs are rising for some, but this would be partially offset by rate hikes, the report said.
Analysts at MOFSL reiterated their overweight stance on financials and PSU banks. “Valuations in banking are reasonable after the recent underperformance even as asset quality continues to remain healthy,” a report said.
MOFSL is also bullish on healthcare stocks and from the industrial sector it’s bullish on L&T and Bharat Electronics. On its part, KIE expects the IT companies to report single-digit net profit growth during Q2FY24 while fertilisers & agro chemicals companies would report sharp decline in growth.