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Mumbai: Pandemic distress and widening lockdowns have failed to curb the markets’ optimism for FY22, with analysts on Bloomberg upgrading Nifty earnings per share (EPS) estimates by 3%, after a 43% rise since the end of December quarter.

“If there is better control on the virus spread by mid-May, earnings are unlikely to be impacted for FY22 as corporates have better control of their businesses now compared to last year. However, further disruptions may spell trouble as far as earnings go," said Deepak Jasani, retail research head at HDFC Securities.

According to analysts, the second half of fiscal year may see a strong macro recovery, thanks to expanding vaccinations, and a consumption cost from the favourable monsoon predicted by weather agencies.

Credit Suisse Wealth Management analysts said in a report that India’s localized restrictions could lead to some downward revisions in earnings, but they could be limited as large corporates are better prepared this time.

“While the partial lockdowns and restrictions could impact some businesses very hard, the larger and well-managed companies could gain further market share. Also, some of the lost demand in the next few weeks could reverse once the lockdown is lifted," the 20 April report said.

However, analysts remain concerned that a sharp rise in covid-19 cases across the country and enhanced mobility restrictions may continue to be key overhangs.

“This has started posing a threat to corporate earnings recovery. Notably, the possibility of supply disruptions and increased covid-19 cases in hinterland areas can further hurt economic momentum. Despite putting enhanced mobility restrictions, manufacturing and infrastructure activities have not halted yet and companies appeared to be proactive this time to convince most workers to stay back by offering basic amenities and facilities. Therefore, given the current status, a large economic damage like last year is unlikely to happen," said Binod Modi, head of strategy at Reliance Securities.

Still, Nifty valuations have cooled; currently, the index is trading at a one-year forward price to earnings (PE) of 19.62 times, compared to 21.08 times in the beginning of FY22.

“Valuations look reasonable in the context of earnings growth and reasonable yield gap. We do not rule out some downgrades to FY2022 earnings," said Kotak Institutional Equities.

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