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Earnings downgrades accelerate on poor Q3

Analysts say such cuts in earnings expectations could further accelerate in April.

, ET Bureau|
Last Updated: Feb 26, 2020, 08.09 AM IST
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Most of the Nifty EPS growth in the nine-months ended December 2019 has been driven by corporate tax cuts announced in September 2019.
Earnings estimates of more than half the top 300 Indian companies have been downgraded by analysts at brokerages in the last one month, according to an ET study based on Bloomberg estimates. Analysts said the downgrades have been led by companies in energy, healthcare, metals and financials after their earnings fell below estimates in the December quarter. Among 50 companies in the Nifty, 20 failed to meet earnings forecasts while 19 beat estimates.

Analysts say such cuts in earnings expectations could further accelerate in April as the March quarter results too are likely to disappoint.

“About 68 per cent of stocks under coverage saw earnings being cut post results, with average cut being 6 per cent,” said Sunil Tirumalai, analyst, Emkay Global. “Earnings cuts were more frequent in retail, banks and chemicals. With the asking rate for March 2020 and FY21 being high, we foresee further earnings cuts going forward”.

Earnings snip 1

The study is based on 304 companies in the BSE 500 index tracked by brokerages.

Companies such as Adani Power, VGuard Industries, Info Edge India, Intellect Design Arena, Ashoka Buildcon, Arvind Fashions, Magma Fincorp, Himatsingka Seide, Tata Steel and BHEL among others saw 30-60 per cent cuts in earnings per share (EPS) estimates in the past one month. Most of the Nifty EPS growth in the nine-months ended December 2019 has been driven by corporate tax cuts announced in September 2019.

Oil marketing companies missed revenue estimates on account of weaker refining margins while a slowdown in credit growth and peaking of net interest margin resulted in lenders missing their revenue estimates. Delay in execution on account of deferrals in certain states hit infrastructure and construction companies.

“We believe the economy is in the midst of a structural adjustment which started with demonetisation, clampdown on black money and real estate sector, and got worse with the NBFC crisis, GST transition and trade wars,” said Amnish Aggarwal, analyst, Prabhudas Lilladher. “The government has been fixated on keeping the fiscal deficit under check and has not provided for any significant pump priming boost to the economy.”

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