Nifty Q3 profit growth pegged at 10%, best in five quarters

Combined net profit of 50 index companies estimated at ~1.14 trillion

After a good July-september quarter (second quarter, or Q2) that saw profit growth return to positive territory, brokerages now expect double-digit growth in the combined net profit of the Nifty50 companies in the October-december 2020 period (third quarter, or Q3) of 2020-21 (FY21).

This growth is led by a big jump in the net profit of commodity producers in sectors such as metals and mining, crude oil, refining, and cement.

The index companies are expected to report a combined net profit of ~1.14 trillion for Q3, up 10 per cent from ~1.04 trillion a year ago. If companies spring a surprise as they did in Q2, profits could beat the record high figure of ~1.15 trillion delivered in the September 2020 quarter.

On Friday, Tata Consultancy Services kicked off the earnings season with a bang, beating analysts’ estimates on all counts.

The Nifty50 companies’ combined net sales (net interest income in the case of lenders and insurance companies) are expected to decline 2.5 per cent year-onyear (YOY) in Q3. This is still an improvement from the 8.1 per cent decline in their combined net sales reported for Q2, and the 26.9 per cent contraction seen in the April-june quarter.

For comparison, the combined net profit of index firms was up 6.9 per cent, while the combined net sales was down 0.2 per cent YOY during the December 2019 quarter.

“The drivers of corporate earnings are changing at the margin, with the Q3 earnings expected to be led by cyclical sectors like metals and cement, even as health care is expected to post another solid quarter,” wrote Motilal Oswal Financial Services analysts in their earnings estimates note.

The brokerage expects its universe of companies’ combined profit after tax to grow 17 per cent YOY in Q3. Excluding metals and cement, their universe is expected to post just 5 per cent profit growth for the quarter.

The analysis is based on earnings estimates by Motilal Oswal Financial Services, Kotak Institutional Equities (KIE), Edelweiss Securities, IDBI Capital, Antique Stock Broking, and YES Securities.

For banks and NBFCS, net sales reflect their net interest income, while it is total income from the sale of goods and services for other firms. Net sales and PAT for Q3 are based on brokerage estimates, while it is reported numbers for the earlier quarters.

Tata Steel is expected to be the top contributor to Nifty earnings’ growth in Q3, followed by Indian Oil, JSW Steel, Airtel, and Dr Reddy’s.