The Indian equity market has delivered strong returns in the FY20-21 led by sharper-than-expected economic and corporate earnings recovery. The Nifty is expected to end FY21 with healthy 13 percent earnings growth, the highest since FY11, despite challenges posed by the COVID-19 pandemic.

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Broad market share shifts toward organised corporates across sectors and prudent cost optimisation measures catalyzed this 13 percent earnings growth in a year when nominal GDP is expected to decline 4 percent YoY, brokerage firm Motilal Oswal said.

The fourth quarter of FY21 is likely to be another strong quarter as high-frequency data points indicate decent economic recovery. However, toward the end of Q4FY21, a spike in COVID-19 cases in the second wave has started somewhat muddying the outlook.

The interplay of the resurgence in COVID-19 cases and the pace of vaccination would decide the trajectory of economic recovery going ahead, according to the brokerage.

Motilal Oswal has changed its model portfolio which reflects its growing conviction in cyclical recovery and acceleration in earnings growth going ahead.

The brokerage maintains an Overweight (OW) stance on IT, Metals, and Cement. BFSI is now marginally Overweight from Neutral.

"We have added weight to Capital Goods and made it OW. We have reduced our allocations in Telecom and Healthcare from OW to Neutral," Motilal Oswal said.

It has maintained Neutral stance in Consumer and Autos, while staying Underweight (UW) on Energy and Utilities.

In BFSI, the brokerage has added Cholamandalam Investment and SBI Cards & Payments Systems in the Diversified Financial space. It has further increased the weight in SBI given the attractive valuations and improving operating performance.

In Consumer, the firm has re-introduced Britannia after the rating upgrade. In Healthcare, it introduced Gland Pharma, while maintaining its allocation in Divi’s Laboratories.

In Capital Goods, Motilal Oswal has added weight in L&T to partake in the cyclical and capex recovery at reasonable valuations. In the Mid-caps space, it introduced Federal Bank, Whirlpool, Gujarat Gas, and LTTS.

Motilal Oswal's top picks among large-caps include ICICI Bank, SBI, Infosys, HCL Technologies, UltraTech Cement, M&M, Hindustan Unilever, Titan Company, Divi’s Laboratories, Hindalco and SBI Cards

In Mid-caps, its top picks are SAIL, IEX, L&T Technology, Chola Finance, Gland Pharma, Emami, Gujarat Gas, Orient Electric, Varun Beverages and Federal Bank.