With the disruption to the economy from Covid-19 expected to be severe, corporate profit estimates for FY21 are being pruned. Consensus estimates of earnings per share (EPS) for the Nifty 50 are hovering around Rs 560, down from close to Rs 700 in February, or a drop of about 20 per cent.
“We have cut our FY2022E volume/revenue assumptions and net profit estimates for most stocks under our coverage given the risks to demand across sectors,” analysts at Kotak Institutional Equities wrote.
They added the cuts had been sharp in the case of automobiles, banks and diversified financials, commodities, and modest for consumer staples. While several high-frequency indicators have been improving following the gradual lifting of lockdown, and some have moved to pre-Covid levels, earnings are expected to be further revised downwards once earnings season is over.
Given there could be a further contraction in the Nifty earnings — the consensus is baking in a 2 per cent fall as of now — it would make markets even more expensive unless there is a correction.
Analysts at Jefferies are projecting a 12 per cent earnings decline in FY21 for the Nifty. The brokerage’s earnings forecasts for financials are well below the consensus estimates by anywhere between 13-89 per cent. —FE
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines