Q2 Results Review: The Biggest Earnings Downgrades And Upgrades
Analysts lowered the average full-year earnings estimate for Nifty 50 companies as the number of index constituents that either beat or met forecasts fell to its lowest in at least five quarters.
Earnings of 34 of the Nifty 50 companies either surpassed or were in line with consensus estimates of analysts tracked by Bloomberg in three months ended September, while 16 missed forecasts. Brokerages attributed the trend largely to higher commodity prices that increased costs.
The Nifty earnings missed the average analyst estimate at the beginning of the earnings season by nearly 6 percent, largely because Sun Pharmaceuticals Industries Ltd., Grasim Ltd., Tata Motors Ltd. and state-run oil marketing companies missed profit estimates.
Earnings Per Share (Rs)
- Q1FY19 Actual: Rs 114.3
- Estimate at start of Q2: Rs 129.1
- Actual EPS at end of Q2: Rs 121.4
Analysts responded by lowering full-year earnings estimates. Tata Motors and Cipla Ltd. led the companies that saw the deepest cut in earnings, while Grasim and Tata Steel Ltd. saw the biggest upgrade, according to Bloomberg consensus estimates.
CLSA cut EPS forecast for companies under its coverage by 5.5 percent for financial year 2018-19 and by 2.1 percent for FY20, according to its India strategist Mahesh Nandurkar. That’s the biggest reduction in forecasts in 11 quarters, he said.
These sectors that saw widespread downgrades were cement and automobiles, according to CLSA. Earnings forecasts were also lowered for consumers, telecom and media companies, Nandurkar said.
- Motilal Oswal cut Nifty EPS estimate by 4.4 percent for FY19, and 2.9 percent for FY20, attributing it to public sector banks and telecom.
- Citi cut FY19 earnings forecast by 7 percent; it expects a growth of 16-17 percent.
- While top line growth was meaningfully better than expectations, operating income and profit rose largely in line with forecasts because of pressure on margins as commodity costs rose, said JPMorgan.
The sectors that disappointed were automobiles, cement, consumer, oil and gas and pharmaceuticals.