Bank of America Merrill Lynch (BofA ML) today said it expects earnings per share for BSE benchmark Sensex to fall to Rs 1260 for the current financial year (FY14) and sees stock markets trading in a range-bound manner.
"Since the beginning of the year, our bottom-up FY14 Sensex EPS has got downgraded by around 6 per cent to Rs 1,315. We continue to expect further downgrades to FY14 Sensex EPS to Rs 1,260," BofA-ML said in a research note.
According to the foreign brokerage major, after two quarters of 'near-zero' growth aggregate headline profit for Sensex companies, it is expected to show a weak recovery.
Moreover, there could be a risk of disappointment in earnings, especially given the recent rupee depreciation.
Concentration risk is a major factor behind the downgrade of Sensex EPS as just three stocks - Reliance Industries (RIL), HDFC Bank and ICICI Bank account for over three-fourths of the profit growth, it said.
The research note further said that the broader market is expected to be rangebound and the market is expected to be dictated by rate cuts rather than earnings.
"Overall, we continue to expect FY14 Sensex EPS growth to be downgraded to 8 per cent. We continue to expect a range-bound market: rate cuts rather than results will be the key trigger for markets," BofA-ML said.
A sectorwise analysis shows that pharma, consumer, utilities, bank to show strong growth while telecom is expected to drag the 30-share benchmark index.
Meanwhile, Sensex EBITDA margins expected to improve on a YoY basis, an aggregate Sensex EBITDA margins at 16.5 per cent is expected to show a year-on-year gain of 65 basis points, led by rise in EBITDA margins of utilities, telecom and metals companies.