Sensex companies earnings to fall this much this year; shares to gain only when infection slows down

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Published: May 26, 2020 5:03 PM

Plagued by the coronavirus pandemic, earnings of the BSE Sensex companies is set to contract by 8% in the current fiscal year

The march quarter earnings season is well underway with listed companies showing hints of weakness caused in the numbers by the fall in demand in the last few days of March.

Plagued by the coronavirus pandemic, earnings of the BSE Sensex companies is set to contract by 8% in the current fiscal year, said Amish Shah, co-head India equity research, Bank of America. The contraction is nudged by the broader economic worries that are gripping the world at this juncture, Shah said that hopes of gains in equities should be pinned on a decrease in coronavirus infections or another fiscal stimulus. The march quarter earnings season is well underway with listed companies showing hints of weakness caused in the numbers by the fall in demand in the last few days of March. “We are expecting a 7-8 per cent contraction in companies this fiscal and it will go up to 17 per cent in FY22,” Amish Shah said.

Shah said that if the coronavirus infection curve does not come down and a fiscal stimulus does not come from the government, investors will continue to look towards defensive sectors such as information technology, pharmaceuticals, FMCG, and telecom. Following the commentary of many experts and analysts, Shah too opined that structural changes in the medium to long-term are expected. The changes may include a second wave of consolidation where entrenched companies across sectors expand their market shares as it happened in the aftermath of demonetisation and GST introduction (the first wave) and also disintermediation of the supply chains where online mediums become more successful largely at the cost of the wholesalers or middlemen. Sovereign wealth funds investing into Indian assets is also being seen as one of the structural changes. 

Countries across the world such as the United States and Singapore have announced large fiscal stimulus packages, India too has come out with a Rs 21 lakh crore economic package. The government is trying to initiate reforms on the basic factors of production including land and labour, Amish Shah said, crediting it for being “creative” with the former, wherein it has adopted strategies beyond repealing or replacement of the land acquisition laws to be more effective, like giving land available with state-run enterprises like BHEL.

India’s GDP growth is set to contract in the current fiscal year, according to various economists and brokerage firms. The Central bank has also acknowledged that the economy will be shrinking this year. “We are expecting a 7-8 per cent contraction in companies this fiscal and it will go up to 17 per cent in FY22,” Shah said. At present, Indian indices are under-performing as compared to others and a package from the government can help cover the ground, according to Shah.

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