“The COVID-19 pandemic now casts significant uncertainty on near-term earnings. Consensus has cut its Nifty
50 earnings estimates for FY21 by 18 per cent over the past one-and-a-half months. We estimate further downside risk of 17 per cent / 9 per cent to current consensus estimates for NIFTY for FY21/22,” Mukherjee and Sahu wrote.
This fall in corporate earnings, according to Nomura, will be led by the financial and oil & gas sectors. Revival in consumer discretionary segment, too, will be delayed and lower than the current estimates. Further, potential rise in commodity prices
is also a key risk to earnings, they said.
For key banks in the Nifty that now face a weakening growth outlook, poor credit quality and extended moratorium, Nomura's loan growth assumptions have declined from 13.6 per cent / 13.1 per cent to 8 per cent / 11.4 per cent in FY21F/FY22F.
“Overall, we estimate 30 per cent / 16 per cent downside risk to current consensus estimates for financials for FY21 / 22. We estimate overall -30 per cent / -13 per cent risks to consensus estimates for the oil & gas sector for FY21 / 22,” Nomura
With the demand outlook uncertain, Nomura expects corporate capex to also remain muted in the near term. “Even as infrastructure investment
remains the focus of the government, stretched government finances are likely to hurt order inflows and execution, which will also be impacted by migration of labor and future unavailability of labor at construction sites,” Nomura said.
As an investment strategy, retained its overweight stance on the healthcare sector and has turned positive on the information technology sector.
"We are positive on pharmaceutical companies that are 'over-invested' and at the cusp of delivering strong earnings growth. Weaker rupee is also supportive. We turn positive on IT services as valuations are reasonable and there are increasing prospects of stronger growth over the medium term. We maintain Reliance Industries (RIL) as one of our top picks in India. Underweight financials, infrastructure / construction / cement," the Nomura report said.