Midway into the Q2FY23 reporting season, several companies are staring at earnings downgrades. While banks and information technology firms have posted good results, players in sectors like cement, consumer goods, metals, retail, real estate, infrastructure and oil marketing have struggled to meet estimates.
Aggregate numbers so far are poor. For a sample of 638 companies (excluding banks and financials), net profits are down 26% year-on-year even though sales are up 31%. While the fall in the operating profit is just about 8%, higher expenses on interest – up 25% – and depreciation charges have hurt the bottom-line.
The outperformance of 32 Nifty companies vis-a-vis expectations is just about 0.7% at the net profit level while for 25 Sensex companies, it is 2.3%.
“If banks are excluded, the outperformance would be smaller, so upgrades, except for banks, are ruled out at this point. We could see downgrades for commodities players and some consumer names too,” said an analyst with a leading brokerage.
Kotak Institutional Equities lists JSW Steel, HDFC Bank, Tata Consumer, Maruti Suzuki, Tata Steel, HUL, NTPC, Wipro, HDFC Life Insurance and Reliance Industries among the companies whose results were below its analysts’ expectations
“Q2FY23 earnings season has been disappointing until now, with aggregate net profits of the Nifty-50 Index coming in 4.6% below estimates and 7.7% excluding financials. We note that broad weakness across sectors, excluding financials, limits the chances of earnings upgrades,” analysts at the brokerage wrote.