Weak numbers from the India Inc for the July-September quarter have led to the biggest downgrades in earnings estimates since early 2020, according to Jefferies. The brokerage firm said it has downgraded earnings estimates for 63% of the 121 companies under its coverage that have reported their latest quarterly results.
The underwhelming growth in the September quarter follows a similar trend in April-June, and has triggered sharp corrections in the markets. The benchmark indices have fallen around 8% from their lifetime high levels seen in late September.
The correction is healthy, “particularly as it has impacted the most expensive part of the market, while the relatively inexpensive private sector banks have started to outperform,” Christopher Wood, global head of equity strategy at Jefferies, said in his latest Greed and Fear report.
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The corporate earnings growth witnessed a steady growth after Covid, driven by operational efficiencies. However, the last two quarters showed a divergence in the trend.
Motilal Oswal Financial Services noted in a recent report that Q2 earnings growth of 166 companies under its universe was the lowest in 17 quarters as profits declined 8% year-on-year.
Wood pointed out, “This seems to reflect the impact of a cyclical slowdown… The Jefferies Economic Indicator, an Indian economy tracker based on 35 indicators’ monthly data, rose by 4.3% YoY in September, up 1.7 percentage points from a 3-year low of 2.6% in August, but remained 0.6 percentage points below the calendar year-to-date levels.”
As per Motilal Oswal, the aggregate performance was hit by a sharp drag from global commodities. Companies in the oil and gas, metals, cement and chemicals sectors were among the worst performers. Financial services, telecom and utility companies reported strong growth.
Overall, Motilal Oswal downgraded the aggregate earnings estimate for Nifty companies by 1.2% for FY25, on top of a 4% cut ahead of the beginning of the earnings season.
Foreign portfolio investors have pulled out Rs 1.14 lakh crore ($13.6 billion) in the last six weeks since the September quarter earnings season began. However, this has also coincided with stimulus measures announced by China, leading to tactical fund flows shifting to that country.
“Despite the recent 7-8% correction from the highs, the broader markets are still trading at expensive valuations,” according to Motilal Oswal. The brokerage firm has made several important changes in its model portfolio by raising weights in banking, financial services and insurance (BFSI), technology and healthcare companies, with a distinct bias towards large-caps.
From: financialexpress
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