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Corporate earnings in the September quarter are expected to fare better as businesses emerged from a complete lockdown that caused unprecedented supply chain disruptions in the preceding three months. The earnings rebound will be helped by lower input prices, cost-saving measures and a demand recovery, analysts said.

The quarter ended 30 September will likely see a sharp recovery in earnings on a sequential basis though it may still remain subdued for most sectors, barring software services, the analysts added.

Gautam Duggad, head of research, Motilal Oswal Institutional Equities, estimates Nifty profits to show strong sequential recovery and decline just 5% from a year earlier in the quarter to September compared with a 31% drop in the first quarter of FY21.

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“We are expecting 4% and 5% decline in revenue and net profit for Nifty. For Sensex, we see a 5% decline each in net sales and net profit. We expect a consistent and gradual recovery in the underlying economy, demand and corporate earnings as we proceed into FY21. That said, the timing and quantum of another economic stimulus will also determine the pace of economic recovery," he said.

Margins may stay resilient for discretionary companies, which have aggressively cut both fixed costs like rentals as well as discretionary spending such as on marketing.

Key factors to watch out for will be management commentary on demand ahead of the festive season and resilience strategies of companies to combat the disruptions from the pandemic, which has led to a massive loss of household incomes.

Duggad said management commentaries will hold the key for further earnings momentum or upgrades. In the case of banks, financial services and insurance firms, the trends on moratorium, restructuring and revival of credit growth will be key.

Analysts expect pent-up demand to aid volume growth in sectors such as automobiles and consumer durables. Pharmaceuticals, fast-moving consumer goods, IT and telecom sectors will, however, stay relatively insulated from the turmoil and report resilient performance, they said.

“Manpower intensives like infrastructure/capital goods may see a decline in operating profits given site-specific lockdown and work shutdown due to monsoon albeit lower than Q1. Similarly, with full resumption of economic activity still sub-optimal, pockets such as discretionary and retail, etc., will report a decline in earnings," said Pankaj Pandey, head of research, ICICIdirect.

IT firms are expected to report stable Q2 earnings with healthy deal pipelines, demand normalization and continued control on discretionary costs. Cement producers are likely to report a firm quarter led by marginal volume growth and cost control.

“We should be focusing on how the companies give commentary on capacity utilization, labour availability and progress on working capital cycle," said Arjun Yash Mahajan, head-institutional business, Reliance Securities.

Analysts expect rural demand to continue to outperform urban demand.

Indicative guidance for the September quarter by a few companies such as Marico, Godrej Consumer Products and HDFC hints at a business revival in the July-to-September period.

“Rural continued to perform better than urban, aided by government’s focused relief packages, relatively lower impact of the pandemic, resilience of the agricultural sector in a declining gross domestic product (GDP) context and the consumption shift due to reverse migration of labour," said Marico Ltd in an update about its operating performance and demand trends in Q2.

Godrej Consumer Products expects its domestic business to deliver close to low double-digit YoY sales growth, led by hygiene and household insecticides categories.

Meanwhile, lower crude prices and a stronger rupee could benefit a few companies. The rupee appreciated more than 2% while crude prices fell 0.5% in the September quarter.

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