Slowdown worries mount in India as corporate earnings pressure markets

Motilal Oswal Financial Services

11/11/2024 11:15

By Bharath Rajeswaran, Hritam Mukherjee and Shubham  Batra
       Nov 11 (Reuters) - Top Indian companies registered their
worst quarterly showing in more than four years for the
July-September period, raising concerns that a lurking economic
slowdown had begun to affect corporate earnings.
    More than 50% of the 44 firms in the blue-chip Nifty 50
index  .NSEI  that have reported earnings so far have either
missed analysts' estimates or reported results in line with
expectations, according to data compiled by LSEG.
    This is their worst performance since the March 2020 quarter
at the start of the COVID-19 pandemic, when only about 20% of
the Nifty 50 companies beat estimates.
    Curbed government spending in April-June, due to the
national elections, that spilled over into the September quarter
and above-normal rains impacted earnings outcomes, analysts at
Jefferies and Bernstein said.
    Indian equities have dropped about 8% from their record
closing high notched on Sept. 26, with October marking the worst
monthly performance for the stock market since March 2020.
    The selloff was also exacerbated by foreign investors moving
out their investments in the wake of China's recent stimulus.
    "It appears the waters may get a bit turbulent for Indian
equities in the near term," said Motilal Oswal.
    
    
    According to Jefferies, the current season has had the
highest earnings downgrades since April-June 2020 among the 121
companies under its coverage that have reported results so far.
    Motilal Oswal, meanwhile, flagged an 8% decline in earnings
growth for the 166 companies it covers - the worst in 17
quarters - compared to a pre-season estimated drop of 4%.
    Bernstein, however, added that investors were still
considering the weakness over the past several months as an
anomaly due to an elongated period of strong growth.
    "Once reality hits, we expect a further but limited
moderation in the Nifty from current levels."
     
        
    BLIP OR APPROACHING STORM?
    The monsoon or election impact may only be a part of the
problem, according to Bernstein, "with a broader economic
slowdown seen across IIP, eight core industries, automobile
demand or diesel consumption."
    Construction firms UltraTech Cement  ULTC.NS  and Larsen &
Toubro  LART.NS  flagged weak demand, while banks reeled under
their inability to recover unsecured loans. FMCG giants Nestle
India  NEST.NS  and Hindustan Unilever  HLL.NS  also noted dull
urban consumption.
    Factory growth slowed to an eight-month low in September,
while economic growth slowed to 6.7% in April-June. Data for
July-September will be released on Nov. 30.
    Bernstein moderated its year-on-year growth expectations for
September earnings to 0.6% for the top 100 stocks, from its
previous 9% forecast, while retaining its full-year consensus
earnings growth of 10.2%.
 
    
  
    Venkatesh Balasubramaniam, managing director and co-head of
research at JM Financial, said one quarter of earnings weakness
was not enough to indicate an economic slowdown, saying it was
"too soon" to make that call.
    "There is a possibility that government capex picks up in
the second half."
    Jefferies, which also noted the earnings moderation as a
reflection of a cyclical slowdown, said that things could pick
up in the second half of fiscal 2025.
    Government spending on capex has fallen 15% in the first
half, it said. With weather disruptions behind, execution and
spending will rise by 25% in the second half, supporting an
earnings rebound and a bounce-back in markets, it said.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Moderation in earnings of India's Nifty 50 companies    https://reut.rs/4hEB8Kf
India's Nifty 50 logs worst monthly performance since March 2020
   https://reut.rs/3Cg0n5c
Brokerages view on India's quarterly earnings season so far    https://reut.rs/4fJmEaj
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Shubham Batra, Bharath Rajeswaran and Hritam
Mukherjee in Bengaluru; Editing by Janane Venkatraman)
 ((Shubham.Batra@thomsonreuters.com;))