Corporate commentary has turned positive again from June 2021 after a subdued couple of months due to the restrictions. Several high-frequency macro indicators have also recovered due to the 88% decline in active COVID-19 cases from the peak and increased pace of vaccination.
Earnings in Q1FY22 are estimated to be strong as the impact of lockdown was not as severe as last year. Overall earning momentum for FY22 is also expected to remain strong and build upon the solid 15% EPS growth for Nifty in FY21.
Key Earning Drivers for Q1FY22
Cyclical stocks are expected to lead the Q1FY22 earning season due to the huge rally in commodity prices.
In the metal space, a strong pricing environment and higher exports are likely to offset the decline in domestic demand and lead the earnings.
IT space will continue to outperform on the back of strong deal wins and healthy YoY margin expansion. In BFSI, credit growth has remained muted, but earning momentum would be maintained by lower provisioning costs. Consumer staple FMCGs are also expected to post a healthy performance helped by strengthening the supply chain and new product launches. However, margins could come under pressure due to the rising cost of raw materials.
In other sectors like auto, consumer durables, cement, oil & gas, and capital goods are likely to post volumes below pre-COVID levels. Telecom companies are expected to report the loss at an aggregate level for the 16th straight quarter, largely led by Vodafone Idea.
The Market Outlook
The equity market remained resilient during Q1FY22 as economic activities remained fairly resilient. The economy is expected to grow at a robust pace of 8.5-9.5% for FY22. Amid this positive setup, the market is facing challenges from the advent of a possible third COVID-19 wave, persistent inflation, and liquidity squeeze from global central banks, interrupting the FII flow.