“We have cut our FY2022E volume/revenue assumptions and net profit estimates for most stocks under our coverage given the risks to demand across sectors,” analysts at Kotak Institutional Equities wrote.
With the disruption to the economy from the Covid-19 pandemic expected to be severe, corporate profit estimates for FY21 are being pruned. Consensus estimates of earnings per share (EPS) for the Nifty 50 are hovering around `560, down from close to Rs 700 in February, or a drop of about 20%. “We have cut our FY2022E volume/revenue assumptions and net profit estimates for most stocks under our coverage given the risks to demand across sectors,” analysts at Kotak Institutional Equities wrote.
They added the cuts had been sharp in the case of automobiles, banks and diversified financials, commodities, and modest for consumer staples.
While several high-frequency indicators have been improving following the gradual lifting of the lockdown, and some have moved to pre-Covid levels, earnings are expected to be further revised downwards once earnings season is over.
Given there could be a further contraction in the Nifty earnings — the consensus is baking in a 2% fall as of now — it would make the markets even more expensive unless there is a correction.
Analysts at Jefferies are projecting a 12% earnings decline in FY21 for the Nifty. The brokerage’s earnings forecasts for financials are well below the consensus estimates by anywhere between 13% and 89%.
While the economy is expected to contract by 5 % in FY21, sales of consumer goods are expected to get a boost from improving rural markets. A normal monsoon, a good rabi harvest, reforms in APMC and ECA resulting in better realisations for farmers, a bigger allocation for MGNREGA and higher minimum support prices are expected to boost rural incomes. However, the overall consumption demand is expected to stay muted thanks to a lack of consumer confidence following layoffs and pay cuts in the job market and a large number of insolvencies in the MSME space.
Among the indicators that have seen an uptick are the daily average number of e-way bills, railway freight, traffic congestion, car registrations, property registrations and import duties. The commentary from India Inc post the Q4FY20 results has been very cautious, bordering on the pessimistic. Most companies are currently grappling with re-opening their manufacturing facilities, organising labour and say they have little visibility on demand.