Indian Firms Face Prolonged Earnings Downgrades After Lockdown
The portrait of Mahatma Gandhi is displayed on an Indian 50 rupee, left, and 2000 rupee banknotes in an arranged photograph. (Photographer: Brent Lewin/Bloomberg)

Indian Firms Face Prolonged Earnings Downgrades After Lockdown

(Bloomberg) -- As the outlook for Indian corporate profits grows increasingly murky under the influence of the coronavirus pandemic, analysts are hunkering down for a protracted series of forecast cuts.

Asia’s third largest economy is set for a near-complete disruption of economic activity for at least 40 days after Prime Minister Narendra Modi extended a nationwide lockdown to prevent the spread of the virus. This has further clouded the prospects for a recovery in company earnings.

The NSE Nifty 50 Index is still down 24% for the year despite recovering since late March. The average analyst estimate for 12-month forward earnings per share on the gauge has continued to fall, and is down about 10% in the past six weeks.

“Estimating earnings in such a fluid global and local environment is fraught with risks, and to that extent, we are expected to undergo more revisions as we move forward” in the fiscal year to March 2021, Gautam Duggad, an analyst with Motilal Oswal Financial Services Ltd., said in a report.

Indian Firms Face Prolonged Earnings Downgrades After Lockdown

Among firms that have already reported for the fiscal fourth quarter, Infosys Ltd. joined fellow information technology giant Wipro Ltd. in not projecting revenue for the current year. HDFC Bank Ltd. reported higher provisioning for bad loans to cushion the negative impact on its large portfolio of retail loans.

Motilal Oswal expects sales for Nifty companies declined 10% year-on-year in the January-March period, with profits sliding 20%. Edelweiss Securities Ltd. estimates Nifty earnings held up somewhat better, down 5%, with banks, cement and health-care firms probably bucking the overall downtrend.

“The weakness in earnings is likely to be broad based, with the top line of more than 50% of companies likely to contract,” Edelweiss analyst Prateek Parekh said in a note to clients.

As the dust settles on the latest quarter, expectations for future results are likely to come down as well. Given the extension of the government’s pandemic precaution measures, current estimates for EPS growth of over 20% for both this year and next are prone to sharp downgrades, Parekh said.

“The quantum will depend on the magnitude of the policy response and how quickly the economy exits the lockdown,” he said.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.