These are the early days of Q2FY21 result season. It may take a while to ascertain the general direction of corporate earnings in the unlock quarter. But, going by the experience of IT companies that have declared quarterly numbers so far, it looks like investors would be better off if they juxtapose Q2 results with the stock market performance of companies—pre as well as post earnings.
TTM: Trailing Twelve Months
(Source: ACE Equity)
IT companies have been in vogue ever since the pandemic broke out. During the initial phase of lockdowns, investors latched onto them as defensives. Later, they were looked upon as the major catalyst of technology transformation in the post pandemic era.
IT companies went into Q2FY21 result season with hefty gains of 25%-90% from their March lows. And despite posting impressive numbers in the quarter gone by, Indian tech stocks have so far been showing signs of fatigue.
The entire global healthcare ecosystem seems to be substantially investing in technologies to improve in the areas of diagnosis, seamless healthcare delivery and real-time monitoring, amongst others. Moreover, the export data for the month of September reflects a 24% jump in the exports of drugs and pharmaceuticals. On this backdrop it remains to be seen how India’s export-oriented pharma companies have done in Q2FY21.
The likes of TCS winning contracts from automotive companies in the overseas markets and Tata Elxsi reporting a positive growth in the transportation EPD business, and back home auto ancillary companies posting satisfactory numbers hint at a revival in the automotive industry. Whether it can sustain is a million-dollar question.
Out of auto ancillary companies that have declared their Q2 numbers so far, Steel Strips Wheels, GNA Axles and Rane Brake Lining stood out by clocking 82.4%, 2.9% and 54.7% profit growth, respectively, on a Y-o-Y basis.
The revival might be underway and as the earnings season progresses the shape of the recovery curve will become clearer. Under such conditions, it remains crucial to see how much of the economic and earnings recovery is already factored into stock prices. Post-result stock price performance of IT companies suggests that there will be a performance pressure on companies that have experienced stupendous rallies since March 2020.
The market’s honeymoon period is over. Its tryst with earnings will continue!
Please Note (read as a disclaimer): None of the stocks discussed in the article are recommendations to buy, hold or sell. This could just be the starting point for deeper analysis that you might want to carry out on your own. You may also take professional help as you feel appropriate.
Want to look at an interesting stock that you may consider for your portfolio post-earnings? Watch this video
You may also like to read our detailed Q2 earnings coverage
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