With most companies reporting disappointing numbers for the September quarter, earnings estimates for the current year are seeing downgrades. Brokerage Jefferies has cut the FY23 earnings estimates for 49% of the 147 companies that it tracks. The brokerage said the FY23 earnings per share (EPS) for the Nifty set of companies has been cut by 3.7 percentage points though they have been left largely unchanged for FY24.
Strategists at Kotak Institutional Equities (KIE) expect net profits of the Nifty-50 to grow 11% in FY23 and 16% in FY24. “The moderate growth in FY23 reflects the sharp decline in profits of the commodity sectors and large loss of BPCL, which will partly offset strong growth in profits of the automobiles and banking sectors,” they wrote.
“Our net profit estimates for FY23 and FY24 saw modest cuts in the Q2 season and we see downside risks to earnings of domestic cyclical sectors such as auto and construction materials from volume and or profitability disappointments,” they wrote. The brokerage also sees downside risks to the earnings of export-oriented sectors such as IT services. Other analysts have pointed out consumption demand could slow down meaningfully due to inflation and the interest rate hikes which could add up to as much as 250 bps or more.
They see little scope for earnings upgrades given the weaker-than-expected economic recovery, the slowdown or recession in developed economies and rising interest rates.
At current levels of 18,244, the Nifty now trades at over 22 times estimated FY23 earnings and 19.2 times estimated FY24 earnings. Most stocks are expensively valued and the market may be overlooking some of the headwinds to growth. Aggregate profits for a set of 2,441 companies (excluding banks and financials) fell some 26% year-on-year as elevated raw material costs ate into operating margins. Many of the heavyweights disappointed the Street. For Q2, the adjusted operating profit for the Nifty went up by 5.5% above KIE’s expectations but, excluding BPCL, it came in marginally below expectations.