Corporate EPS downgrades fly thick and fast, market cool

A spate of disappointing corporate earnings for the quarter ended September 2014, thanks to a slow economic recovery, forced analysts to downgrade the FY15 earnings per share ( EPS) estimates of about 60% of the top 300 companies (covered by at least 5 analysts). Of the 181 downgrades, 124 are mid-caps while the remaining are large-caps. Stocks, mostly belonging to consumer goods, cement, PSU banks and telecom and utilities suffered the maximum downgrades.

Some of the stocks which have been downgraded include Axis Bank, ABB, Aditya Birla Nuvo, Jindal Steel and DLF. Among Nifty stocks, there were 14 upgrades and 32 downgrades. The earning estimates of companies such as Tata Motors, Maruti Suzuki and Sun Pharma have been upgraded signifi cantly.

Analysts said the consensus on earnings downgrades for FY15 & FY16, post Q2 FY15 results, belies current market euphoria. “It appears that the market is setting its sights on the growth prospects beyond FY16, ignoring the current earning downgrades and perceiving lower risk premium on India, given the improving macros, political stability, decisive governance and benign external sector,” said Vinod Karki, VP-Strategic Research Group, ICICI Securities. “Assuming lower infl ation, anticipated rate cut, improving consumer sentiment, and investment revival are expected to fuel earning upgrades in FY16.”