Low base effect likely to accentuate earnings recovery in FY17

The latest fourth-quarter earnings show has provided hopes of a recovery for India Inc in FY17. A bountiful monsoon, as forecast, would ensure improvement in consumption and business sentiment. However, given the overall poor performance in FY16, the recovery may well be accentuated by a low base. Data from Bloomberg comparing the earnings of 126 BSE companies with their consensus estimates reveals interesting insights. The number of companies posting annual results with negative surprises have increased in the past fi ve years from half to 63% in FY16. The number of companies posting repeated negative surprises (indicating deteriorated performance) stood at fi ve times of the ones posting repeated positive surprises. Blue-chip companies like HDFC Bank, Tata Steel, M&M, HUL and Axis Bank have negatively surprised in FY16 — first time in the past fi ve years.

Companies posting below expectation performance consistently in each of the past fi ve years are double than those that have beaten expectations.