Indian markets have been on a rise, gaining for the past 4 sessions amidst buying interest in index heavyweights and hopes that the pace of monetary tightening may slow down. Better than expected quarterly by most sectors results have also aided in the positive sentiment, however, analysts have cut earnings per share (EPS) estimates for Nifty for FY23 and FY24, a report by Business Standard noted.
“Nifty consensus earnings for FY23/24 have seen an earnings downgrade of 3.3 percent/1.4 percent since the late March 2022 peak. Nine Nifty stocks with high global earnings contributed about 60 percent of Nifty earnings cuts. Earnings in the domestic sectors were more resilient with cuts at 0.7 percent, so far,” BS quoted brokerage house Jefferies.
Ii further pointed out that according to Bloomberg, Nifty EPS is now pegged to grow 14 percent YoY in FY23 to ₹857 and by another 14 percent to ₹978 in FY24. Currently, the Nifty50, which has last closed at 17,158, trades at about 20 times and 17.5 times its FY23 and FY24 earnings estimates, respectively, it noted.
"If earnings growth surprises on the upside, it will help the market sustain. However, given the headwinds, analysts fear there could be further cuts in Nifty EPS," the report further said.
As per BofA, the Street is yet to cut Nifty EPS meaningfully, despite several emerging risks: Slowing growth (both global & domestic), adverse policy interventions, forex depreciation, rising rates, etc.
Nifty EPS cut may have been sharper if not for the encouraging results by non-financial companies during the recently concluded June 2022 quarter (Q1FY23), added the BS report.
According to forecasts by BofA Securities, Brent crude is expected to average $105 per barrel during the second half of CY22.
This is likely to weigh on sectors like cement, paints, and FMCG. For consumer firms, crude oil-linked costs (including packaging) form up to 17 percent of sales. The rising crude oil prices could hence pose margin pressure in a weak volume environment,” the brokerage said.