After several quarters of downgrades, aggregate earnings estimates of the Nifty index had risen for two consecutive quarters after the September and December 2017 results. But it didn’t turn out to be a case of third-time lucky for investors. In the March 2018 quarter earnings season, there were downgrades again, with a number of firms missing earnings estimates. Kotak Institutional Equities has cut earnings estimates for the Nifty by over 5% in the past few months.

First and foremost, slippages and provisions at banks rose sharply, thanks to the central bank’s guidelines on stress recognition. Besides, profitability fell for automobile, cement and drug makers, largely because of lower realizations; and in some other cases, there were downgrades because of company-specific reasons.

What’s more, with crude prices having risen sharply, there are risks of further downgrades. Unless state-run firms can pass on the higher burden through price increases, their profits will be hit. At a broader level, a higher budget for fuel expenses may hit consumption spending.

Of course, not everything was gloomy. The signs of recovery in growth in the preceding two quarters were reflected somewhat in the March quarter as well. “4QFY18 results confirmed the ongoing recovery in the Indian economy, with a broad-based pick-up in demand across sectors," analysts at Kotak Institutional Equities wrote in a note to clients. The brokerage expects earnings to grow 23% in fiscal 2019, aided by a decline in loan-loss provisions by banks and higher profitability for firms that benefit from higher commodity prices and a weaker rupee. “Banks saw moderate recovery in loan growth; consumer firms reported strong volume growth led by a mix of favourable base, demand recovery and normalization of business post-GST; passenger vehicles continued their steady growth trend, while commercial vehicles saw a sharp increase in volume; cement volume registered an uptick; and order booking for industrial firms was decent, suggesting a moderate recovery," the analysts wrote in a 31 May note.

But despite all of these positives, profitability was under pressure, and overall Nifty earnings declined on a year-on-year basis, which, again, was contrary to the trend of growth in the preceding two quarters.

And while markets may be tempted to cheer the signs of recovery, it’s foolhardy to ignore the number of macroeconomic concerns. While bond yields have risen to account for higher crude prices and a depreciating rupee, equity investors have responded with a yawn in the past two months. And it’s not like crude is the only worry. Some equity strategists are worried that populist spending ahead of the 2019 general election and farm loan waivers by some states will result in slippages on the fiscal deficit front. Globally though, fears of a full-fledged trade war have ebbed, but geopolitical tensions remain. Thus far, the Indian stock market has a defence against all of these concerns: a high and sustained flow of domestic savings into equity markets. But surely, one can’t bank on this lasting forever. Another disappointment on earnings can prove to be devastating.

“India’s macro is weak, politics uncertain and valuations rich—a potentially dangerous combination in case earnings were to disappoint," Kotak’s analysts say.

Automobiles | Outlook turns cautious amid sturdy Q4 result

Aviation | Airlines flying low thanks to higher crude oil prices

Banks | Q4 earnings of lenders indicate they are in the twilight zone

Capital goods | Muted margins temper earnings expectations

Cement | As production capacity, competition increase, the chase for volumes will weigh on prices

FMCG | Consumer goods firms in a sweet spot

Infrastructure | Order flows gain speed but timely execution key to boosting stock valuations

Information technology | Q4 results show growth acceleration theory was a myth

Metal | Q4 earnings indicate investor enthusiasm has cooled a bit

Oil and gas | Some disappointments, but a fine set of numbers overall

Pharmaceuticals | In relief to investors, the worst may be over

Power | Fuel constraints, impairments dim earnings of power utilities

Real estate | Few shining stars in an otherwise dark sky

Retail | Q4 earnings a mixed bag

Telecom | With incumbents holding their own, Reliance Jio stays in disruption mode

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