More earnings downgrades coming: Religare

Says defensive stance is best in the current environment

Analysts are likely to cut their expectations of growth in earnings per share (EPS) for large companies even more in the days ahead.

Religare Capital Markets suggested that downgrades are likely to continue in a report entitled ‘Earnings Predictability In The Downturn’, pegging their own estimate for growth at 5% for the current financial year(FY14).

“Sensex EPS estimates have been downgraded by ~9% since the start of FY14, with the street currently expecting ~10% earnings growth. Amid weak economic outlook and falling demand, we expect downgrades to continue with our top-down earnings growth estimate at 5% for FY14,” said the report authored by Tirthankar Patnaik, Prerna Singhvi and Saloni Agarwal and dated 24th September.

The trio added that a look at the previous years suggests that analysts are more positive at the beginning of the period, suggesting that the positive sentiment may soon wane.

It added that a defensive stance is best in the current environment.

“We maintain our overweight stance on…(Information Technology and Pharmaceutical companies), despite the recent..(rupee stability). We also remain negative on Banks, especially after the recent run-up, as rates are expected to remain high in the system and we don’t see the central bank’s stance changing in a hurry especially amid rising inflationary concerns as also indicated by the RBI in the last monetary policy meet,” said the report.