Bull run of mid-caps halted, as analysts trim earnings estimates for current fiscal

It may take some more time for the economic recovery to spell faster earnings growth for Indian companies than expected just a few months ago, analysts appear to be realising, as they trim their estimates for the current fiscal. This, in turn, has halted the bull run of the mid-cap stocks on the bourses. The data of earnings upgrades after the announcement of results for the April-June quarter show that large-cap stocks have fared much better than mid-cap stocks on an incremental basis.

According to Bloomberg data, of the 122 stocks that have witnessed earnings per share (EPS) upgrades for 2014-15 estimates, 74 are from the mid-cap segment, compared with 70 mid-cap stocks in the previous quarter. In contrast, 48 large-cap stocks witnessed EPS upgrades compared with 28 in the preceding quarter.

Nifty stocks, a sub-segment of large-cap stocks, witnessed EPS upgrades for 21 of its 50 stocks during the quarter compared with 13 in the preceding 3-month period.

Among the Nifty stocks, Lupin’s EPS has been revised by 10.7%, ACC’s by 8.4% while Maruti Suzuki’s EPS has been revised by 7.2% in the wake of the announcement of results.

“Higher consensus EPS upgrades in largecap stocks in comparison to mid-cap stocks show that the build-up of euphoria is tapering off and analysts have to pare down their estimates in order to match their estimates with the ground reality,” said Vinod Karki, vicepresident of ICICI securities.

This is of a piece with the trend seen in the past, he said, explaining, “Historically, it has been observed that the during the early recovery cycles, large-caps stocks lead the earnings upgrades cycle, followed by the mid-cap stocks only later. This is one of the primary reasons why the mid-cap stocks are now losing their earnings momentum.”