Weak macros are taking a toll on corporate earnings.
According to data compiled by Morgan Stanley, 25 of 40 companies with market capitalisation
of over Rs 70,000 crore have seen their forward earnings per share (EPS) getting revised downwards in July. A dozen companies have seen their estimated earnings revised upwards, while earnings forecast has remained unchanged for the remaining three. Meanwhile, the forward earnings of the MSCI India index have seen downgrade revisions for at least a sixth year in a row.
Analysts say there is a possibility of further downgrades. “Consensus Nifty FY20 EPS is currently forecasting growth of 23 per cent with nominal GDP growth assumption of 10 per cent, which indicates a high risk of meaningful earnings downgrade,” says a note by Phillip Capital, which has slashed its one-year Nifty target to 11,300-11,800 from 12,200-12,700.
The brokerage has cited four factors for its negative stance.
“While we have been highlighting risks like weak macros and earnings for a few months, added negative reasons that have led to the Nifty downgrade are: Higher tax incidence on FPIs that will impact inflows to an economy with already weak economic outlook; the likelihood of Nifty valuation premium shrinkage; the likelihood of MF flows tapering; persisting and aggravating tight liquidity condition; and lack of growth triggers in the medium to long term,” says the brokerage.