The December quarter earnings came in well above our expectations with big beats and upgrades reported across segments. In a review report, brokerage house Motilal Oswal noted that the sharp demand recovery was seen during the festive season – with the opening up of the economy and the number of COVID-19 cases being contained, coupled with continued cost-saving initiatives.

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The underlying recovery has led to the broad-basing of growth. Cyclical sectors like metals, auto and cement drove the earnings in the quarter under review. Metals, oil & gas, and autos accounted for 72 percent of the incremental YoY profit-accretion in the quarter, MOSL said.

Its top large-cap ideas post the earnings include Infosys, HUL, ICICI Bank, SBI, Axis Bank, and L&T among others.

Meanwhile, its preferred mid-cap picks are AU Small Finance, Whirlpool, Gujarat Gas, Max Financial, L&T Tech, Varun Beverages etc.

The brokerage has revised FY21 and FY22 Nifty EPS estimates up 4.7 percent and 2.8 percent, respectively. It now expects FY21 Nifty EPS to grow 15.7 percent YoY.

It further noted that earnings growth and upgrades have been broad-based as all mainstream sectors have beaten our expectations.

"We believe the government’s focus on fiscal expansion and capex spending augurs well for the revival of the long-anticipated private investment cycle," it stated.

It expects the earnings momentum to sustain with a) further revival in the economy, b) the containment of the COVID-19 pandemic, and c) the benefit of a low base ahead.

However, the Nifty valuations at 21.3x FY22 EPS are not inexpensive anymore and demand consistent earnings delivery ahead, it added.

MOSL further observed that rising bond yields may cap equity valuations as the RBI may have to do a balancing act to keep bond yields at lower levels while managing the government borrowing program.

(Edited by : Jomy)