Earnings of nearly one-fifth of the NSE500 companies saw downgrades in the last four weeks, according to Bloomberg data.
Information technology, auto, metals, energy, and discretionary companies led the downgrades ahead of the September quarter results.
Limited, , , , , , , , , and FSN E-Commerce Ventures () witnessed the steepest earnings expectation cuts. Nifty’s earnings estimates were downgraded by 3% in the previous quarter.Analysts expect earnings downgrades to broaden if demand slows down further.
“Going ahead, we foresee risks of a broad-based earnings slowdown led by demand – rather than margins – given the adverse global backdrop and weak domestic income dynamics,” said Prateek Parekh, analyst at
Securities. “Historically, during global downturns, an earnings cut of 10-20% has been the order. So far, earnings have been cut by only 3%, hence, the downgrades could accentuate going ahead.”
About 10 stocks have seen earnings per share (EPS) downgrades between 10% and 60%. Earnings expectations of another 10 stocks have been downgraded in the range of 3- 10%.
Higher commodity prices have been one of the key reasons for earnings buoyancy over the last two years. In FY22, the global rally in commodity prices alone accounted for 50% of incremental Nifty earnings growth.
Analysts said further downgrades would weigh down markets that are already trading at premium valuations.
“India is trading at a record valuation premium relative to both MSCI Emerging Market and MSCI Developed Markets at +2 standard deviation above mean,” said Pankaj Chhaochharia, head of research at Antique Stock Broking.
“Markets may further de-rate in the near term due to reduction in banking liquidity, flattening of the yield curve, another 35-60 bps rate hike by RBI by February 2023, and deteriorating global growth outlook.”
, , , and too saw earnings downgrades in the last four weeks.
