earnings: Most consumption, outsourcing and investment stocks face earnings risk: Kotak Securities

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Mumbai: The growing breadth of earnings downgrades in prominent sectors such as auto, pharmaceuticals, retail, consumer durables, specialty chemicals, and construction materials poses risks to estimated earnings growth for the Nifty over this fiscal year and the next, Kotak Securities said.

“Indian market valuations may appear more reasonable compared with recent history, but earnings downside risks exist given increasing uncertainty around growth,” Kotak said in a note. “Most consumption, outsourcing, and investment stocks appear rich, given the increased risk of further cuts to earnings, while banks and NBFCs remain attractive.”

According to Bloomberg consensus estimates, about 63% of the NSE 500 companies have seen earnings downgrades in the last four weeks. The number of earnings downgrades during the past four weeks was 165. That compares with 98 upgrades.

“We note a few headwinds, such as weak growth prospects, inflation, and earnings downgrade risks, especially in consumer discretionary and outsourcing sectors. In our view, bottom-up valuations do not price potential risks adequately in the case of most sectors,” said Kotak Securities.

For the Nifty 50 index, Kotak estimates earnings per share of ₹915 for FY24 and ₹1,063 for FY25, translating into expansions of 13.2% and 15.6%, respectively.

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