Those at Motilal Oswal Securities, too, have priced in a 10 per cent cut in Nifty earnings estimates in FY21. Global cyclicals, they believe, will see significant earnings downgrade given the sharp fall in commodity prices and expected moderation in global economic growth. “Domestic economy facing sectors will also see downward revision in the earnings forecast due to restricted movements to prevent the outbreak of coronavirus,” they wrote in a recent report.
From the recent peak on February 19 2020, the Indian equity market has corrected 28 per cent (in US dollar terms), underperforming many regional peers. The uncertainty around Covid-19 spread has expanded the risk premium for equities. The fall has been magnified as foreign institutional investors dumped Indian stocks and sold to the tune of $4.8 billion in the last 11 days alone (till March 16), data shows.
Taking into account the current slower economic growth and changes in the prices of commodities and currencies, analysts at Nomura estimate 10 per cent and 8 per cent downside risk to FY21 and FY22 consensus’ earnings estimates, respectively.
“We see earnings risk across sectors driven primarily by financials autos, information technology (IT) services and metals. We acknowledge additional risk, particularly to near-term earnings, but if Covid-19 spread is contained it will have a limited impact on long-term earnings, in our view,” said Saion Mukherjee, managing director and head of India equity research at Nomura in a recent co-authored report with Neelotpal Sahu.
Meanwhile, Morgan Stanley and Goldman Sachs expect the global economy to head into a recession going ahead in 2020. Morgan Stanley sees 2020 global growth to dip to 0.9 per cent, the lowest since the global financial crisis (GFC) and says the global recession in 2020 to be deeper than in 2001. “We expect global growth to contract by 0.3 per cent in the first quarter (January – March) of 2020 (Q1-20) and 0.6 per cent in 2Q20,” wrote Chetan Ahya, chief economist and global head of economics at Morgan Stanley in a co-authored report with Derrick Y Kam, Nora Wassermann and Frank Zhao.