Even as the ongoing slowdown took a toll on earnings of heavyweight firms the Nifty delivered a tepid 5% earnings growth for the quarter.
Even as the ongoing slowdown took a toll on earnings of heavyweight firms the Nifty delivered a tepid 5% earnings growth for the quarter. Brokerage firm Motilal Oswal had expected earnings growth of 12%. “The 1QFY20 corporate earnings-report was below our expectations for both the Nifty and the MOFSL Universe. The Nifty delivered 5% earnings growth for the quarter versus our estimate of 12%,” Motilal Oswal noted in its latest report. Domestic Cyclicals continued driving earnings growth for the third consecutive quarter, led by Financials, which contributed almost the entire earnings delta but still fell short of expectations, said the firm.
What is interesting in the analysis is that the the intensity of downgrades went up with 93 companies witnessing 3%+ earnings cut (v/s only 30 companies witnessing 3%+ earnings upgrades). “We had cut our Nifty EPS estimate by 4% to Rs 560, and now expect 13%/16% profit/EPS growth in the Nifty for FY20, singularly led by corporate banks Corporate commentaries have weakened across the board, especially on the Consumption front, as the impact of economic slowdown, coupled with muted sentiment, is reflected in demand,” the firm noted.
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Interestingly, private banks and IT firms have reported robust numbers, as opposed to the larger trend. In case of banks and financial institutions, the asset quality situation has worsened sequentially with several banks witnessing higher slippages and guiding for new stress accounts in the Apr-Jun period. Many banks have guided for a moderation in loan growth, led by economic slowdown (both consumption and capex remain weak), tight liquidity and high promoter leverage (which has resulted in higher number of defaults), observed the report. “SBI, Axis Bank and RBL reported an increase in stressed assets to select corporate groups (resulting in an increase in credit cost estimates), while ICICI Bank, HDFC Bank and Kotak Mahindra Bank delivered a steady performance.