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While India Inc’s performance was expected to be muted in the June 2017 quarter and expectations were already modest, the actual performance has been far more disappointing, according to brokerage firms. Nifty 50’s net profit declined 11 per cent year-on-year in Q1 versus an expected drop of 1 to 6 per cent.
Subdued growthBesides GST, subdued domestic growth and an appreciating rupee also affected performance, according to Deutsche Bank.
Nevertheless, sales growth has come much ahead of expectations, thanks to freebies and discounts offered ahead of GST. Revenues of companies forming part of Nifty 50 grew 9 per cent in Q1, compared to expectations of 6-7 per cent.
Performance has been affected in sectors, such as consumer discretionary, information technology, telecom and healthcare, while sectors such as domestic cyclicals and metals have surprised positively.
According to Motilal Oswal, major earnings surprises came from Hindustan Unilever, Tata Steel, UltraTech, JSW Steel, Tech Mahindra, United Breweries, Titan Company, Shree Cement, InterGlobe Aviation and Bharat Electronics while major disappointments were from Dr Reddy’s Labs, Tata Motors, Sun Pharma, Ashok Leyland, Lupin, State Bank of India, Emami, United Spirits, ONGC and LIC Housing Finance.
Outlook on EPSPost Q1 performance, brokerages have sharply cut their earnings estimates for FY18 — by about 3 per cent — as the GST drag is expected to continue in the current quarter as well. Consensus expectations for the EPS growth of benchmark indices stands at 14-17 per cent, compared to 21-23 per cent expected earlier and that too because of benefits of low base on account of demonetisation in the second half of FY17 to select sectors.
“Q1 FY18 performance in a way makes the FY18 earnings recovery thesis that much more challenging,” pointed out Motilal Oswal in a report. According to JM Financial, “After a sluggish Q1, the required y-o-y growth over the next nine months to attain our initial growth expectation of 23 per cent y-o-y for the full year is now pegged at 35 per cent. Realistically, we expect a downward revision in earnings, going forward, which could push the market valuation higher.”
Nevertheless, earnings estimates remain unchanged for FY19 as of now.
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