The companies part of India’s benchmark index – Nifty 50 – have largely reported an in-line set of numbers so far for the June-ended quarter. A total of 36 companies, from sectors like financials, insurance, FMCG, capital goods, IT, pharma, and oil and gas, have reported their earnings. The combined profit of these 36 companies stood at Rs 1.44 lakh crore as against Street expectations of Rs 1.43 lakh crore.
Jefferies believes that the June-quarter results season has been better than expected, while Kotak Securities says that the earnings season is showing continued weakness in consumption, muted IT services demand, and weak loan growth for banks.
Jefferies says that the downgrade ratio — though negative — has improved sequentially. Nearly 50% of the companies tracked by Jefferies have seen earnings downgrades as against an average of 57% over the past three quarters. Banks were the key reason for the downgrade, added Jefferies. The large private banks delivered mixed results, with asset quality concerns in a few banks, alongside an uneven net interest margin trend.
Earnings estimates have been cut by 1-9% for larger private banks. NBFC assets under management and profit growth have been faster, though commentary has been weak on consumer trends.
Kotak Securities continues to stay bearish on the IT sector as the companies continue to face challenges around growth and margins, given the persistent weak discretionary spending environment. IT companies also cited uncertainties from macro headwinds, delayed decision-making by clients, and soft discretionary spending. However, on the other side, Jefferies upgraded its IT sector rating to ‘neutral’ from ‘underweight’ as it believes that IT stocks can see a ‘tactical bounce’.
Jefferies remains concerned about long-term stock performance for IT companies given a single-digit EPS growth outlook, but expects a near-term tactical bounce on attractive valuation relative to Nifty, free cash flow support, and under-ownership.
Kotak Securities sees a muted outlook across sectors, which should result in further cuts in consensus earnings estimates, while Jefferies is of the view that earnings trend should improve in the September-end quarter on a low base and early festive season.
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