Indian markets may have discounted the possible Greece exit from the European Union, but could see pressure from corporates' financial performance.
DSP Merrill Lynch expects earnings to see more downgrades. "Aggregate Sensex earnings expectation for FY16E continues to remain high. Consensus Sensex EPS growth for FY16 is about 23 per cent on a bottom up basis. We expect this to get downgraded to about 15 per cent," said Anand Kumar, analyst of DSP Merrill.
Among Sensex cos, Banks (HDFC Bank, Axis Bank), Telecom (Bharti) are expected to lead the growth. On the other hand, Metals (Tata Steel) Industrials (L&T), and autos are expected to drag down growth.
"Mirroring the previous two quarters, the market is expecting to witness another quarter of weak earnings season, reinforcing our view that earnings recovery will be slow near term," said Anand Kumar in a report.
Headline Sensex profit growth is expected to be a mere 0.3 per cent on a consolidated basis. Excluding financials, aggregate profit is expected to fall by 4.4 per cent. Secondly, aggregate sales for Sensex companies is expected to contract for the third consecutive quarter at negative 2.8 per cent YoY.
Even within the broader BofA-ML Universe sales is expected to show a dip on a YoY basis.
The only silver lining is that excluding Tata Group global subsidiaries, aggregate profit growth is expected to be marginally better at 4.4 per cent.
Aggregate EBITDA margins for Sensex companies are expected to show a 75 bps expansion on a YoY basis. However, this is completely led by oil. Ex-energy EBITDA margin is expected to decline by 65 bps, led by autos (240 bps) & Metals (125 bps), he added.