India Inc stares at biggest earnings downgrade in four years

The lower-than-expected earnings reported by a clutch of large caps have prompted analysts to revise their earnings estimates for the rest of the year. According to Bloomberg data, the earnings per share (EPS) estimates of Nifty50 for FY25 have seen a cut of 10.5% in October alone. The consensus EPS  estimates for the index now stand at ₹1,134, against a high of ₹1,279 clocked at the beginning of August this year.

The Nifty50 constitutes that missed the Street estimates in the September quarter include Hindustan Unilever, Tata Consumer Products, Bajaj Auto, IndusInd Bank and others.

Similarly, among the broader Nifty100 companies, the steepest cut in FY25 earnings was seen at JSW Steel, InterGlobe Aviation, Indian Oil Corporation, UltraTech Cement, Ambuja Cements, Avenue Supermarts, and BPCL. The performance of oil marketing companies was impacted by multiple factors including under-recovery in liquefied petroleum gas, inventory losses, and weaker margins.

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While the heavy rains during the quarter adversely impacted the tea and packaged beverages segments of consumer staples companies, it was the rise in slippages and high credit costs that dragged IndusInd Bank’s earnings. Not to mention, the stocks of all these companies have already collapsed anywhere between 5% to 18% post their Q2 numbers.

Meanwhile, Jefferies has downgraded earnings estimates of more than 60% of the 98 companies covered by them that have reported their 2Q results. According to the brokerage, the cut in earnings is the highest since early 2020. “Above normal rains and weak government spending has impacted earnings outcomes,” Jefferies wrote in an investor note on October 30. The brokerage further added that a clear trend should emerge in the December quarter but some intrinsic slowdown appears likely.

Among sectors, cement, energy, lenders, mid-caps, automobiles and consumer staples saw meaningful cuts in earnings, whereas companies from technology, non-lending financial services companies, and property developers saw some upgrades.

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The persistent rally in domestic stocks, driven by local investors has already taken the valuations of many stocks to their multi-year high. Further, the rich valuation commanded by most of them is here to stay considering the lower profits reported by them in the second quarter. Despite an 8% drop from the peak, the benchmark Nifty50 currently trades at 22 times its one-year forward earnings, which is a premium of 13% over its five-year average.