Q4 earnings season comes to an end: Brokerages handpick over 30 stocks to buy

With a stable government in place for the next five years and acceleration in the pro-reforms agenda, faster earnings recovery is expected over the next two years.

With a handful of small companies left to declare their Q4 earnings, the result season has finally come close to an end. In an otherwise unremarkable season, financials came to the rescue for India Inc.

Sensex earnings (ex-financials) took a breather in Q4FY19 from a higher double-digit growth trajectory in the previous three quarters. It registered a modest 8-9 percent growth in top and bottom-line.

The top line was up 8.8 percent YoY to Rs 6 lakh crore, EBITDA was up 7.9 percent YoY to Rs 1.1 lakh crore with the corresponding EBITDA margins at 18.5 percent, ICICIdirect said in a note.

Domestic cyclicals continued driving earnings growth for the second consecutive quarter, led by financials, which contributed almost the entire earnings delta but still fell short of expectations, suggest experts.

For Nifty50, the EPS grew 7 percent to Rs 481 in FY19. FY20 estimates remain more or less unchanged with most of the brokerages signalling a double-digit uptick.

Motilal Oswal's Nifty FY20/21 EPS estimates remain unchanged at Rs 604/706, building in the growth of 25.6/16.9 percent. However, the direction of earning estimates revision for the broader markets still remains downward, with 55 companies in the Motilal Oswal Universe witnessing an earnings cut of 5+ percent and 28 companies witnessing upgrades of 5+ percent.

Among sectors, PSU banks and capital goods saw upward earnings revision of 19 percent and 3 percent, respectively, while consumer, pharma and metals have seen cuts of 4 percent, 5 percent and 4 percent, respectively.

Upwards revision in PSU banks is largely attributed to the shifting of provision writebacks pertaining to NCLT cases from 4QFY19 to FY20

Valuation remains high, but midcaps could deliver

Nifty is trading at the higher end of the valuation and with no concrete signs of a significant improvement in the earnings growth. Analysts advise investors to remain cautious; hence, investors should remain stock specific.

Positive sentiment, expectations of reforms and a potential revival in domestic flows could keep valuations rich in the near term.

“At ~20x FY20 EPS, Nifty is trading at 15 percent premium to long period average. Optimism on stable government and potential reforms, earnings recovery and FII flows has driven Nifty to an all-time high,” said a Motilal Oswal report.

Investors are advised to remain stock specific as earnings are likely to recover and bounce back in the next two years. “With a stable government in place for the next five years and acceleration in pro-reforms agenda, faster earnings recovery is expected over the next two years,” Sharekhan said in a note.

“Sensex trades at ~19x one-year forward earnings, which is closer to its long-term average. Whereas, value is emerging in quality midcap space after one and half years of underperformance,” it said.

We have collated lists of stocks that brokerage firms recommend in their top picks baskets after Q4 results:

Motilal Oswal: