While aggregate net income of 47 NSE Nifty 50 Index members slumped 40% in the quarter ended June from a year ago, nearly two thirds of these companies met or exceeded estimates, data compiled by Bloomberg show. For analysts struggling to justify the stock market’s rebound since March, that passes for good news.

“To be honest, we had written off this quarter,” said Abhimanyu Sofat, head of research at IIFL Securities Ltd. “But majority of the Nifty companies have come with better-than-expected results.”

Like in other major markets, earnings in India weren’t as bad as feared as companies slashed costs to save cash, with a reduction in estimates ahead of the results season also making it easier to beat them. Analysts have cut the 12-month average profit estimates for Nifty members by 20% since January on concerns about a patchy recovery and climbing virus numbers.

“Even if things improve in the remaining quarters, full year FY21 will look flattish at best, with risks tilted toward the downside” because of rising virus cases and some states battling a second wave of lockdowns, said Gautam Duggad, head of research at Motilal Oswal Securities Ltd. in Mumbai.

Still, not everyone is putting emphasis on past performance. Some brokers have switched to publishing two-year price targets to eliminate the short-term noise in their research. Optimists say the market has priced in a broad-based earnings recovery to begin in the fiscal year starting next April.

“Corporate earnings will recover in 2022, and the market is looking at that is my sense,” said Sumeet Rohra, a fund manager at Smartsun Capital Pte in Singapore. “Pockets of the market have huge potential.”

Only three Nifty 50 companies including Coal India Ltd., Oil & Natural Gas Corp. and Zee Entertainment Enterprises Ltd. have yet to report results. The regulator has extended the timeline for reporting June-quarter earnings till Sept. 15 amid the pandemic.

Key Highlights

• Four of India’s five biggest technology companies joined their global peers in beating earnings forecasts amid rising tech demand, spurring the biggest earnings upgrades for the sector since 2013
• Consumer staples producers posted the biggest leap in earnings, with Britannia Industries Ltd. posting 117% growth on an adjusted basis
• Most banks reported declines in profits as they continued to bolster buffers against the pandemic. Profit at State Bank of India, the nation’s largest, was helped by sale of stake in its insurance unit
• Communication services, consumer discretionary and industrials posted the steepest declines on an adjusted basis
• Automakers took a hit. Top carmaker Maruti Suzuki India Ltd. posted its first quarterly loss on record as the lockdown stopped people from visiting showrooms

Analyst Comments

• Analysts expect software exporters and drugmakers to continue to report strong earnings for the year ending in March, backed by solid demand and cost-savings from remote-working arrangements
• Rural economies are recovering rapidly because of the government’s initiatives to boost incomes in the villages, said Deven Choksey, who oversees investment and research as managing director at KRChoksey Investment Managers Pvt
• Most companies got “significant cost advantages because of working from home and that cost saving is going to be a permanent feature going forward”

Based on both earnings growth expectations and valuations, “we like banks, capital goods, cement, electric utilities, gas utilities, technology, oil marketing companies and telecom sectors,” said Rusmik Oza, head of fundamental research at Kotak Securities Ltd.

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