Analysts trim estimates as Q2 earnings season begins on a lukewarm note

Initial trends from corporate India’s second quarter results have not been very encouraging and have prompted analysts to trim their estimates for companies’ profit during the current financial year.
National Stock Exchange (NSE) displayed outside the headquarters in Mumbai. (Photo | PTI)
National Stock Exchange (NSE) displayed outside the headquarters in Mumbai. (Photo | PTI)

Although only around 10% of the companies have reported results so far, analysts have already cut their average estimate for Nifty 50 companies’ full-year earnings by 1% in recent weeks

Initial trends from corporate India’s second quarter results have not been very encouraging and have prompted analysts to trim their estimates for companies’ profit during the current financial year.

Incred Equities said around 257 companies have already announced their second-quarter results. These companies, said the broker, have reported a healthy profit growth of 25% and sales growth of 18%.

Paradoxically, this is better than the 23.4% growth that analysts are expecting for 50 companies that comprise the Nifty 50 stock index, going by estimates collected and compiled by Bloomberg, pointed out Incred.

However, despite the seemingly superior performance, the results announced so far have prompted analysts to cut their full-year estimates for Nifty 50 companies’. This is because many of these early reporting companies belong to two key sectors — IT and Banking — and were expected to contribute more towards Nifty 50 earnings growth. 

These include prominent names like Infosys, TCS, Wipro, HCLTech, Paytm, YesBank, ICICI Bank, IndusInd Bank, HDFC Bank, and Bajaj Finance.

“..the disappointment in results of big companies in the IT and banking sectors is an area of concern. This has led to around 1% cut in Bloomberg consensus EPS for FY24F in recent weeks,” said the broker in a report.

The poor show does not directly affect analysts’ estimates for the September quarter, as analysts typically do not revise their estimates for a particular quarter after companies have started reporting their numbers.

However, they do take their cues from the numbers — as well as the commentary — emanating from the companies as part of their quarterly results announcements to update their forecasts for the financial year.

As such, September quarter estimates remain largely stable, and imply a 23.4% increase in earnings per share and a 16% year-on-year jump in operating profit.

In rupee terms, the 50 companies in the Nifty 50 index are expected to report earnings per share of Rs 242 rupees for the September quarter.

This would imply a decline of 2 rupees from the Rs 244 reported by these companies in the April-June quarter. However, analysts had underestimated Nifty 50 companies’ earnings for April-June, as they had expected only Rs 235, or Rs 9 less than what companies actually reported.

Meanwhile, the earnings of Nifty 50 companies have shown a relentless increase over the last several years.

In the year before COVID, Nifty 50 companies used to report quarterly earnings-per-share in the range of Rs 119-144. Over the last four quarter, their per-share earnings have been in the range of Rs 196-Rs 244.

In fact, the Rs 244 reported as the combined EPS of all Nifty 50 companies during the Apr-Jun quarter was an all-time record.

Earnings So Far

Meanwhile, the second earnings season has got off to a disappointing start, with several majors either missing Street estimates or issuing disappointing forecasts.

TCS posted an 8.7% increase in net profit, while Infosys posted a 3.2% increase.

Infosys also lowered its revenue growth guidance to 1-2.5% for FY 2024 from the previous estimates of 1-3% citing challenges in discretionary spending and slow decision-making in the market.

HCLTech reported a 9.8% increase in its consolidated net profit to Rs 3,832 crore for the second quarter as compared to the year-ago period, while Wipro reported a 0.5% year-on-year fall in net profit at Rs 2,646. 

Because of this, several analysts have recalculated their projections for the IT sector this year, and now expect only modest revenue growth.

According to the analysts, the poor revenue growth is seen as primarily driven by a broad-based disruption in global demand caused by the visible economic slowdown in the advanced markets of Europe and the US. 

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