Top stock picks of brokerages as India Inc gets ready for Q2 earnings season

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For Indian equity investors looking for an uptick in earnings growth, the wait has got longer.

A slowdown in domestic growth and the lingering shadow banking crisis mean the September-quarter results season that kicks off Thursday will be similar to one seen over several quarters in recent years -- tepid and patchy.

Analysts expect to see a contraction in profits across most industries, with Edelweiss Securities Ltd.

forecasting sales growth for the stocks it tracks to be the lowest in a decade. The series of steps taken by the government to revive growth, including the $20 billion tax cut for companies, are too recent to reflect in the quarterly report cards, although analysts have since raised their estimates for 12-month forward earnings.

"Overall, we expect a soft quarter and earnings revival could still take some time," Edelweiss Securities Ltd. analysts Prateek Parekh and Padmavati Udecha wrote in a note on Oct. 7. The brokerage's forecast for sales growth excludes banks and commodities-related companies.

NSE Nifty 50 Index earnings for the year to March will shrink by about 4% from a year earlier, according to Edelweiss and Motilal Oswal Securities Ltd.

Software exporters and industrial companies' earnings growth likely fell below 5%, retail banks, oil refiners and consumer discretionary firms may post profit expansion topping 25%, Edelweiss' Parekh and Udecha wrote.

Earnings risks continue to be tilted to the downside because of the slowing economy, uneven asset quality patterns seen in financial-services companies and depressed commodity prices, according to Motilal Oswal.

"At this point, tax rate cuts will largely limit the downgrades rather than driving big upgrades on the earnings front," the brokerage said in a recent note.

Here's what brokerages expect from the earnings season that gets underway Thursday with results from Asia's top software exporter Tata Consultancy Services Ltd.

Kotak Institutional Equities

While Nifty index's pre-tax earnings are seen declining, banks led by Axis Bank Ltd., ICICI Bank Ltd. and State Bank of India Ltd. should post 34% growth, analysts led by Sanjeev Prasad wrote in Oct. 7 note.

Pharmaceuticals are a top pick as the domestic drug business could see 10-12% growth from a year earlier.

Motilal Oswal

Profit before tax for the firm's universe to grow 2% year-on-year but net profit to drop 6%, dragged by automobiles and metals. Ex-financials, PBT/PAT to decline 14% and 8% YoY.

Private banks, consumer, cement and capital goods will provide some respite.

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