Wary of biz prospects, firms suspend guidance

MUMBAI: A growing number of companies are refraining from providing earnings forecasts or forward-looking statements to investors, citing business uncertainties due to the covid-19 pandemic. With the country in the middle of a lockdown since the last week of March, businesses are expected to face a severe impact on their operations in the June quarter. Most companies contend that a growth or recovery will largely depend on how long the lockdown continues and the steps taken by the government to contain the outbreak.

The halt in the practice of offering earnings forecasts is not an Indian phenomenon alone. Global companies such as Apple Inc. have also suspended earnings guidance because of the pandemic. In overseas markets, some investors stress on completely suspending the practice of quarterly earnings outlook as this creates pressure on the management to focus on short-term goals. In a 2018 interview with CNBC, Warren Buffett, chief executive officer of Berkshire Hathaway, and Jamie Dimon, CEO, JP Morgan, had said that they believe quarterly earnings forecasts do more harm than good as they promote short-term thinking.

The decision of companies is not surprising because of the unprecedented disruptions caused by the restrictions imposed to contain the spread of covid-19, said analysts. They said the lockdown is a step in the right direction and may not necessarily impact market returns of individual stock prices in the long-run as uncertain times could mean volatility in stock prices and earnings guidance would do little to reduce that.

“Companies may be reluctant to give earnings guidance in such an environment, but can instead give other quantitative and qualitative information to assist analysts and the broad investment community,” said Deepak Jasani, research head, HDFC Securities.