Corporate results for the December quarter have been on the whole good in India, but the problem is that it hasn’t resulted in significant earnings upgrades.
In fact, brokerage Motilal Oswal Securities Ltd says that after the results they have revised earnings downwards for the benchmark Sensex index companies by 1.7% for the current fiscal, 1.1% for 2010-11 and 0.5% for 2011-12. The brokerage’s analyst forecasts for earnings per share (EPS) for the 30 companies that constitute the Sensex increased from Rs980 in March 2009 to Rs1,103 by September, but have fallen back to Rs1,064 in January.
True, this overall earnings figure hides the wide variety of estimates for individual companies, but it nevertheless underscores the lack of momentum in earnings upgrades.
Citigroup analysts Aditya Narin and Tirthankar Patnaik, in a recent note say that earnings growth has been strong in the December quarter, not just year-on-year, but also compared with the September quarter, with sales growth (an indication that demand is reviving) being particularly heartening. But they also say that “consensus estimates remain largely static” after the results.
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A Credit Suisse research note by Sakthi Siva and Kin Nang Chik says that over the past six months, earnings revisions have lagged those in other Asian markets. They write, “For 2010 E(expected) consensus EPS, India was +0.6% versus +1.1% for the region in January. In the prior month, India was +0.1% versus +0.9% for the region.”
The lack of upward revisions in earnings estimates mirrors the monetary and fiscal tightening concerns on the macro front.
Also, since valuations are already high for this stage of the recovery and given lower global excess liquidity, the lack of earnings upgrades is not a good sign.
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Graphics by Ahmed Raza Khan and Yogesh Kumar / Mint