A dismal June earnings season in which the aggregate revenue of India Inc fell for the fourth consecutive quarter has forced analysts to downgrade earnings estimates for the year FY20. The cuts in consensus earnings estimates have been accelerated after the recently concluded results season in which the earnings estimates for more-than 60% of BSE100 companies were lowered, with companies from auto, finance and metals being hit the worst, data sourced from Bloomberg showed.
Even as the finance minister announced a slew of measures, market experts believe that for a sustained rally, a recovery in earnings is required. According to BNP Paribas Securities, “The Nifty trades close to its historical average P/E (12 months forward P/E: 16.4x), but we see downside risks to Bloomberg consensus estimates. The 1QFY20 earnings season was lacklustre and high frequency indicators suggest income uncertainty and hence weak spending intentions among consumers. Furthermore, global factors such as the most recent escalation in US-China trade tensions have turned more unfavourable. Our fundamental stock picks are unchanged.”
Among the BSE100 universe, Tata Motors, TVS Motor, Indiabulls Housing Finance and Tata Steel witnessed the sharpest cut in earning per share (EPS). While the EPS estimate for Tata Motors cut by 39.3% to Rs 8.44, the earnings forecast for TVS Motor, Tata Steel, Bharat Forge and Vedanta were seen a reduction between 14% and 24%.
While Tata Motors reported a wider-than expected quarterly loss of Rs 3,622 crore, telecom major Bharti Airtel posted an adjusted net loss of Rs 1,837 crore in Q1FY20 against analysts’ estimated loss of Rs 967 crore for the quarter, Bloomberg data showed.
Given the challenging economic environment, most heavyweights from Grasim Industries to Tata Steel, and Tata Motors to Mahindra & Mahindra Financial Services missed estimates.
More-than half of country’s top 100 firms had reported lower-than expected earnings for the quarter ended June 2019, with names such as Grasim Industries and Tata Steel posting less than half of Street’ estimates.
The rural and semi-urban financer M&M Financial saw its Q1 profits falling by 75% to just Rs 68 crore, due to an increase in provisions for stressed loans and elevated cost of financing, owing to tight liquidity conditions for non-banks. Nomura which revised its March 2020 Nifty target by nearly 9% to 11,880, observes the aggregate earnings for NIFTY50 have been cut by 15% for FY20 and 6% for FY21 since the start of FY19.
“We do not rule out the possibility of a further 3-4% cut to FY20/21 consensus estimates on account of the ongoing slowdown,” the brokerage said.
The foreign brokerage also said, the loan growth for key private sector banks has slowed down, likely reflective of an economic slowdown; however, NII growth continues to hold up. This is because private-sector banks have not entirely passed on the benefits of rate cuts by the RBI.
Net sales for a sample of 2,179 companies grew at a lowest pace of 5.9% in Q1FY20, compared to 9.5% in Q4FY19 and over 18% for the quarter ended December 2018, data from Capitaline revealed.
