More companies beat estimates; is the worst over for corp earnings?
MUMBAI: More companies beat or met quarterly earnings estimates than those that missed, an early review of results showed, but analysts say it is too early to conclude that an earnings recovery is on and an informed opinion can be formed after a more complete picture emerges.
A Mint analysis showed that 28 of 54 BSE 200 companies, 17 of 28 BSE 100 companies, and 11 of 16 Nifty companies, that have announced their earnings for the quarter ended 31 March have beat consensus earnings estimates, according to data compiled by Bloomberg.
“The intensity of demonetisation has been quite less,” said Gaurav Dua, head of research at Sharekhan by BNP Paribas.
For the past six quarters, banks’ earnings have been hit by higher NPA (non-performing assets) provisioning, and the base therefore had become low, Dua said. “Banks and NBFCs (nonbanking financial companies) as a pack, are showing a lower incremental increase in NPAs.”
Fourteen of 28 BSE 500 companies, nine of 17 BSE 200 companies and six of the 11 Nifty companies that have beat or met Bloomberg’s estimates, are banks and financial services companies.
HDFC Bank Ltd reported a higher-than-estimated fiscal fourth-quarter profit and stable asset quality, prompting investors to drive its shares to a record high. Rival Kotak Mahindra Bank Ltd reported a 40% rise in net profit for the quarter ended March, beating estimates.
Meanwhile, mortgage lender Housing Development Finance Corp. Ltd (HDFC) reported a standalone profit of ₹2,044.20 crore for the March quarter, in line with estimates.
However, it is too early to form an opinion, analysts say.
“I think the hits are all sectorspecific. For example, cement companies surprised positively on the volume front. I would wait for entire earnings to pan out to draw an inference,” said Gautam Trivedi, chief executive of Religare Capital Markets Ltd.
“As long as we have the earnings from a cross-section of companies, it is difficult to form an opinion. We always notice that earnings start on a good note, and then deteriorate,” said Gautam Duggad, head of research at Motilal Oswal Financial Services Ltd.
Of the 51 companies in the coverage universe of Motilal Oswal Securities Universe that have declared earnings, 20 have seen earnings downgrades of 3%, while nine have seen earnings upgraded by 3%, said Duggad.
“The consumer-focused companies are yet to unveil earnings. So far, the management commentary of the companies that have announced earnings so far are not sounding very upbeat.”
The FY18 Sensex earnings per share estimates fell from its fiscal year 2017 high of ₹ 1,756.52 on November 11 to ₹1,688.37 in on February 17. Since then, it has recovered to ₹1,707.89 on 4 May.
“If we have a combination of normalisation of earnings of banks, and stable prices of commodities, better monsoon and low interest rates continuing for a few quarters, probably the earnings downgrades would be behind us,” said Dua.