Introduction

Earnings season is momentous for stock market lovers. It's when companies on the NSE and BSE announce their quarterly numbers, and it is a time for stock pickers to try and find stocks with massive growth potential. For investors, these four earning seasons a year (April-May, July-August, October-November, January-February) allow investors to find stocks that are growing companies. Finding the growth gems among the thousands of stocks out there is difficult. This article aims to take investors on a different path for identifying profitable growth stocks during earnings season and uses different strategies for Indian investors.

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What Makes Earnings Season Special?

Earnings season is when companies reveal their revenues, profits, and earnings-per-share (EPS), giving you an overview of their performance. For growth stocks, companies with a consistent above-average revenue and earnings growth, this is often the time that makes or breaks them. In India, sectors like tech, consumer durables, and green energy get attention from investors due to consumer demand and government intervention through initiatives such as Make in India.

5 Approaches to Finding Growth Stock

Earnings season for investors requires combining fundamental analysis, technical analysis and discipline.

Here are five methods to help you develop your pipeline:

1. Seek Strong Earnings Momentum

The cornerstone of a growth stock is its EPS growth. Target companies with at least 20% year-over-year (YoY) EPS growth in the latest quarter compared to last year. Better yet, look for acceleration and EPS growth increasing over two to three quarters. For instance, a company like Polycab India, which posted 25% YoY EPS growth in Q2 FY24, signals strong momentum. Platforms like Screener, in or BSE India, can help you track EPS trends and compare quarterly results.

2. Bet on Revenue and Market Leadership

Earnings growth must be supported by strong revenue growth. Look for companies with 15% or greater year-on-year revenue growth, as this will likely reflect strong demand and scalability in their business model. Look for companies that are either industry leaders or innovating in sectors expected to experience high growth. A good example is Suzlon Energy, whose revenue grew in FY24 due to the emergence of renewable energy in India.

3. Track the Smart Money

Institutional investors such as mutual funds and foreign portfolio investors (FPIS) often give an indication of the potential of the stock. Suppose the institutional ownership in any company is increasing during the earnings season. In that case, that indicates that the institutions are confident that the stock will make price moves in the future. You can check the continuing shareholding pattern available on Trendlyne or Moneycontrol, where you can identify an increase in FPI or domestic institutional investor (DII) shares in a specific stock. For example, Dixon Technologies, where the FPI increased its position by 3% in Q3 FY24. If institutions show precaution, they will exhibit trust in price movements, where historically, price appreciation will often happen before price appreciation occurring.

4. Harness Technical Signals

Technical analysis can validate a stock’s growth story. Focus on relative strength (RS), which measures a stock’s performance against a benchmark like the Nifty 50. Stocks outperforming the index by 10-15% over three to six months often maintain their edge post-earnings. Use tools to identify stocks with strong uptrends or breakouts after earnings. For example, Zomato’s 15% surge after Q1 FY25 earnings showcased powerful RS.

5. Master Risk Management

Growth stocks can be volatile, especially during earnings season. A way to lessen the impact on your portfolio is to set three key rules: identify stocks with strong fundamentals to buy, sell if the stocks retreat 7/8% from your buy price, and hold good winners if they have momentum. One good way to reduce risk is to hold stocks across many sectors of the economy. For instance, if you invest in information technology (IT) stock like Info Edge and are a steady earner like ITC (fast-moving consumer goods), you can easily balance portfolio risk by accessing the best of both worlds.

How To Find Growth Stocks in Earnings Season

Here is one way you can buy growth stocks when earnings season kicks off in India:

1. Screen For Growth - Use the app Screener to filter for companies with 20 %+ YoY EPS, 20 %+ YoY Revenue for 2 consecutive quarters.

2. Screen the Highest Growth Sectors - Filter industries that capitalise the most on India's supercycle, such as technology (e.g., LTIMindtree), consumer (e.g., Titan), and Renewables (e.g., Tata Power).

3. Review Quarterly Earnings Filings -  On the National Stock Exchange (NSE)/Bombay Stock Exchange (BSE) sites, look for the earnings in the preview of each company when they release Earnings. Focus on EPS, revenue, and forward guidance.

4. Analysts' Earnings with Technical - Once you have completed step #3, look for the RS (relative strength) chart/price chart to confirm the stock's market momentum. Tools like Trading View can help with graphs.

5. Utilise Earnings for post-earnings breakout - Look for stocks up 5-10% after strong earnings results.

Conclusion

Earnings season is an exciting time for Indian investors searching for growth stocks. If investors look at EPS (Earnings Per Share) momentum, revenue growth, institutional support, technical, and investing with risk management, they can discover stocks where the chance of growth is probable. An Indian market presents an exciting place to find growth stocks in this environment that could contribute to long-term success.

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