Sensex earnings for the fourth quarter of FY11 have been a disappointment. It has failed to match the market forecast by 4%. As per Bloomberg estimates, Sensex EPS (earnings per share) was projected to be R1,045. After announcement of results of all Sensex earnings for Q4, its EPS currently stands at about R1,000. What is more important is the fact that during the earning season, the Sensex earnings forecast for the period 2011-12 has been trimmed by another 2-3%. From earlier Blooomberg estimates of R1,260, the overall estimates post the reporting of Q4 results have been trimmed to R1,200-1,240.
?Sensex earnings number for Q4 has been a disappointment with earnings failing to meet forecast by about 3-4%. The future risk is of further downgrades? says vetri Subramaniam, head-equity funds, Religare Mutual fund. He said the overall forecast is already pegged 3-4% lower for 2011-12 with an EPS in the range of R1,200-1,210.
?While overall market valuations are in line with long-term trends, there is risk of margin pressure going forward which could lead to further downgrades? said Jyoti Jaipuria, head of research at Bank of America Merrill Lynch.
Overall for the financial year 2010-11, companies such as Tata Steel, Bajaj Auto, HDFC, Mahindra & Mahindra, Tata Power and Hindustan Unilever has been able to ?positively? surprise the market with its actual earnings ending up higher than market estimates. On the other hand, companies such as Hindalco, State Bank of India, Reliance Communications, DLF and ONGC ?negatively? surprised the market, which in turn led to sharp share price correction of some of these stocks.
Interestingly, at this juncture, when the one-year forward price to earnings ratio of Sensex is at 14.8?tad below its historical average of 15.5? there are not many buyers in the market. Even portfolio managers at these times are recommending investors to stay put rather than increase equity exposure. ?The future direction of the market will depend on ability of the companies to pass on increased input costs as well its ability to manage higher financial cost? said Kenneth Andrade, head-investments at IDFC Asset Management. He said that while he expected India Inc to grow at slower rates in future, given that Indian economy are showing signs of slowing down, he said he would be worried if growth rates turn negative.