The earnings have held up pretty well. Across the spectrum, if you look at BFSI the earnings have been relatively strong. In fact, Axis Bank showed an expansion in NIMs on a quarter-on-quarter basis. The growth in advances for the sector as a whole, whether they are large banks or medium-sized banks or even PSU banks for that matter, have shown strong resilience. To top that up, asset quality pressures are coming off every passing quarter which strengthens the balance sheet even further.
I think the PSU focus in terms of recoveries and upgrades would boost the bottom line and offset the one-time provisioning or the excess provisioning that is required in expectations of the expected loss provisioning norms kicking in from this financial year. Having said that, the kind of moves that we have probably seen for a few of these banks a little bit of a pullback should be warranted for a few of them. Within the NBFC space, they have performed exceedingly well. So, stocks like CreditAccess Grameen as an example have a very strong set of numbers, replicated again by companies like Spandana Sphoorty, L&T Finance. So, the BFSI space has held up well. Midcap IT has produced another quarter of stupendous earnings and management commentaries are pointing out towards no damage to probably come from either the pricing action or demand dynamics at least at this juncture. A few of the capital good companies obviously have reported a strong set of numbers and though cement companies have disappointed, the reason is obvious. Q2 is expected to be weak for monsoons. The second half should be relatively better for this infra-related proxy that probably comes through. So, the earning season has relatively held up quite well.
Since you were talking about the earning season, one cannot ignore the kind of outperformance that we have seen from the pharma sector whether it is the upgrade coming in from Cipla or the fact that Sun Pharma is holding up with a gain of around 2.5% and then Piramal Pharma that was quite a bit of turnaround story as well. What is your top bet here?
We continue our positive focus on both Cipla and Sun Pharma. As compliance requirements and disclosure, they both remain on our global focus list for a length of time and continue to remain optimistic on them. The numbers have been quite outstanding. Cipla, again, revising their margin guidance from 23% to 24% odd, higher end of the range is a possibility for the better part of this financial year.
The kind of pipeline that they have got, specifically in its respiratory portfolio, can do wonders in the next financial year as well as approvals start coming through and that is probably something which is creating a huge impact as far as US formulation numbers are concerned.
Similarly, for Sun, the kind of pipeline that they have probably got, specialty sales is now 16.5% of the total top line, R&D expenditure at 6.5% but that is expected to inch even higher, maybe 7-7.5% for the better part of this year. Six strong drugs or molecules in the specialty pipeline which are across phases — phase one, two, three, and across different timelines in terms of launches as well.
As this builds up over the next few quarters and as the pipeline starts getting monetised, the kind of numbers that you are expecting, both in terms of US domestic formulation sales as well as the India number, where they are holding on to the numero uno position can very well continue. Obviously, the stocks have moved higher, the stocks have shown good, strong price action over the last few months but we continue to remain optimistic on that. Yes, for Piramal Pharma it has been a turnaround quarter of sorts, but whether they can justify that in the coming quarter as well to have a complete re-rating done in terms of the landscape that they are operating out of, is to be seen. But within the space, Cipla and Sun Pharma are something we remain optimistic about.