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Rupee rout, oil surge put earnings estimates of firms at downgrade risks

Analysts see muted July-September profits for Nifty companies

Nupur Acharya | Bloomberg 

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The rupee’s longest rout since 2000 and oil’s surge to a four-year high have put earnings estimates of Indian companies at the risk of downgrades.

Analysts have boosted the average profit forecast for NSE Nifty 50 Index companies by 9.2 per cent this year, shrugging off a 12 per cent slump in the gauge since August. But history suggests the divergence won’t extend for long, and the growing stress in Asia’s third-largest economy may soon translate into lower projections.

Not that a is bad for all Indian companies -- exporters including software producers and drugmakers will gain in local-currency terms. Still, the net impact on the broader corporate sector may be negative because of higher import bills. Add to that the tighter local-funding conditions, and profit estimates begin to appear optimistic.

“Key factors are rising input costs, volatile crude prices, depreciation and tightening liquidity, all catalysts for market de-rating,” analysts led by Dhirendra Tiwari at Mumbai-based Antique Stock Broking Ltd. wrote in a note. The brokerage expects earnings growth for to be 2.8 per cent on year in the fiscal second quarter, much slower than the 13 per cent expansion seen in the April-June period.

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Demand in the world’s fastest-growing major economy is cooling after back-to-back rate increases by the central bank, prompting policymakers to pause the hiking cycle in October despite the currency’s free fall. A default by a systemically important non-banking company aggravated the sell-off in stocks, which were already reeling under a tumbling and elevated prices of crude -- the nation’s top import.

and higher will further widen the current-account deficit and pose a risk of higher inflation,” Pankaj Pandey, the head of research at ICICI Securities Ltd., wrote in a note this week. “There could be a downward revision in earnings across sectors post the adverse movement in macro parameters.”


ALSO READ: Reserve Bank of India: The surprising reason behind Rupee's continued fall

Here’s what brokerages and investors expect from the September-quarter results season that kicks off Thursday with Asia’s top software exporter Tata Consultancy Services Ltd.

Reliance Securities

  • Expects banking, financial services and insurance companies to see pressure on operating performance; prefers HDFC Bank, IndusInd Bank and DCB Bank
  • Earnings growth for construction firms and power utilities may remain flattish; capital goods expected to post revenue growth of 13 percent and earnings gain of 23 percent year-on-year. Key results picks: HG Infra, KEC International, Kalpataru Power, Engineers India and NTPC

Deutsche Bank

  • Predicts weak rupee may be favorable to technology companies. Tata Consultancy and HCL Tech may lead with year-on-year earnings growth of 24 percent and 19 percent, respectively.
  • Sectors likely to report weaker earnings growth are telecom, consumer discretionary and industrials

Citigroup

  • Says rising input prices and among factors affecting profits for consumer sectors; financials to benefit from lower base while earnings for autos, health-care, industrials and telecom may be weak
  • Expects positive surprise from Aurobindo Pharma, IndusInd Bank, Ambuja Cement and HCL Technology; negative surprise likely from Lupin, Shriram Transport, Mahindra & Mahindra Finance, Emami and Crompton


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First Published: Wed, October 10 2018. 11:02 IST
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