A number of factors including strong pricing environment and higher volumes for metals, moderation in slippages and improved collection efficiency for banks and NBFCs and deal wins for IT will lead to another quarter of solid earnings, said Motilal Oswal in its latest report.

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The key drivers of the Q4FY21 performance, according to the brokerage, will be:

a) Metals – On the back of a strong pricing environment and higher volumes

b) Private banks and NBFCs – On moderation in slippages and improved disbursements/collection efficiency

c) IT – as deal wins translate into higher revenues

d) Autos – As operating leverage benefits offset commodity cost pressures

e) Consumer staples and durables – On strong demand recovery despite commodity price inflation.

Overall, FY21 has been a stellar year for the markets as all the mainstream indices have delivered solid returns on the back of sharper-than-expected economic and corporate earnings recovery, said the brokerage.

The brokerage expects benchmark Nifty to end the year with a healthy 13 percent earnings growth, the highest since FY11, despite the challenges posed by the COVID-19 pandemic.

The brokerage sees PAT rising by 76 percent for the MOSL Universe in Q4FY21, aided by continued economic recovery and a low base. It added that 14 of the 20 sectors are expected to post over 20 percent YoY earnings growth.

"Metals, private banks, and automobiles are expected to drive 60 percent of the incremental Q4FY21 PAT growth. Consumer durables, cement, healthcare, consumer staples, and technology are likely to post earnings growth of 62 percent, 59 percent, 43 percent, 19 percent, and 16 percent YoY, respectively," the brokerage stated.

However, towards the end of Q4FY21, a spike in COVID-19 cases in the second wave has started somewhat muddying the outlook, MOSL noted. The interplay of resurgence in COVID-19 cases and the pace of vaccination would decide the trajectory of economic recovery going ahead, added the brokerage.

Key model portfolio changes

MOSL's model portfolio changes reflect its growing conviction in cyclical recovery and acceleration in earnings growth.

It is 'overweight' on IT, metals, and cement. It is also marginally 'overweight' on BFSI space from 'neutral' earlier. It has added weight to capital goods and upgraded it to 'overweight'.

The brokerage has reduced its allocations in telecom and healthcare from 'overweight' to 'neutral' but maintained a 'neutral' rating for consumer and autos while staying 'underweight' on energy and utilities.

In BFSI, the brokerage added Chola Finance and SBI Card and has further increased the weight in SBI given the attractive valuations and improving operating performance.

In the consumer space, it re-introduced Britannia after the rating upgrade, while, in healthcare, it added Gland Pharma but maintained allocation in Divi’s Labs.

In capital goods, it added weight in L&T to partake in the cyclical and capex recovery at reasonable valuations.

In the mid-cap space, it introduced Federal Bank, Whirlpool,

Gujarat Gas, and L&T Tech.

Top picks

Large-caps: ICICI Bank, SBI, Infosys, HCL Technologies, UltraTech, M&M, HUL, Titan, Divi’s Labs, Hindalco, SBI Cards

Mid-caps: SAIL, IEX, L&T Technology, Chola Finance, Gland Pharma, Emami, Gujarat Gas, Orient Electric, Varun Beverages, Federal Bank