Telecom, auto lead earning downgrades

Analysts have downgraded earnings estimates for FY21 by 22 per cent. Firms in the telecom and automobile space have seen maximum downgrades, while health care is the only sector to have seen upgrades, according to the data analysed by Deutsche Bank Wealth Management. The financial sector has seen earnings downgrade of nearly 30 per cent amid uncertainty over NPAS build-up.

“Telecom services is a one-off led by large provisioning on account of regulatory dues. Auto companies (both two- and four-wheelers) and works on high operating leverage, with any fall in sales hurting profitability sharply. Financials have the risk of a huge rise in NPAS, even though the RBI granted a moratorium to borrowers until end August, and a conditional one-time restructuring post,” says Mayank Khemka, chief investment officer, Deutsche Bank Wealth in a note.

Meanwhile, almost half the Nifty companies have managed to beat analyst estimates during the June

quarter. This is in contrast with expectations of widespread disappointment due to the strict lockdown to curb the spread of Covid-19.

The financial and IT sectors saw most companies beating estimates. On the other hand, earnings of companies in the automobile and telecom space mostly disappointed. Cost controls and lowered expectations are key reasons for companies posting betterthan-expected results.

“With the national lockdown being in force for almost half the quarter, expectations from earnings were running low. Though Nifty earnings fell 26 per cent YOY, it seemed analysts were overly pessimistic in their projections and had expected a 35 per cent decline,” the note adds.