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Informist, Friday, Jan. 10, 2025

 

MUMBAI – JM Financial Institutional Securities Friday said nearly half of the companies it tracks could see a cut in earnings estimates. The brokerage firm said the three months ended December could be another quarter of modest net profit growth for the companies in the benchmark Nifty 50 index.

 

The brokerage said an expected on-year growth of 5.8% in the net profit of the Nifty 50 companies for the December quarter could lead to 4.4% growth for Apr-Dec, posing a risk to its estimate of 5.1% growth in earnings-per-share for the financial year. Excluding the banking, financial services, and insurance sector companies, the Nifty 50 constituents are likely to post a much weaker growth of 2.1% on year for the quarter, it said.

 

Nearly 75% of the companies in sub-sectors such as public sector banks, consumer staples, automobile and automobile-components, cement, sugar, and city gas distribution face risk of a cut in earnings estimates, the brokerage said. In 17 out of 32 sub-sectors, over 50% of companies could see a downward revision in estimates, JM Financial said. Diagnostics and consumer durables, on the other hand, are not exposed to such downside risks, it said. The brokerage said it has already cut the estimates of some companies after they released their business updates for the quarter.

 

The brokerage firm said "...consensus expectations seem too optimistic" for the companies that have not yet disclosed their business updates. Unlike the brokerage's conservative estimate of 5.8% earnings growth for Nifty 50 companies for the quarter, an Informist poll predicted these companies to post 10% growth in their net profit for the period.  

 

Growth in the net profit of the Nifty 50 companies and the brokerage's whole coverage universe are expected to align in the quarter, it said. The brokerage firm expects the growth in net profit for its coverage universe will be led by information technology and pharmaceutical companies. However, sectors such as oil and gas, utilities, metals and mining, and consumer are expected to drag the overall earnings for the December quarter, it said.

 

While companies in the IT and pharmaceutical sectors will likely post net profit growth of 7% and 10%, respectively, growth in sectors such as oil and gas, utilities, and metals and mining will likely fall 4%, 11%, and 8%, respectively. Among the Nifty 50 companies, the infrastructure and telecommunication sectors will lead with an expected on-year growth of 21% and 40%, respectively. The cement and utilities sectors, on the other hand, will likely report a fall of 64% and 15%, respectively, JM Financial said.

 

The brokerage said the Indian equity market saw about $11.8 billion of foreign institutional investor outflows in the December quarter, which led the Nifty 50 index to decline 10% from its peak. While part of this outflow was counterbalanced by domestic institutional investment inflows of $22.1 billion, a correction in the Indian equity market was inevitable, JM Financial said. Sectors such as oil and gas, automobile, and BFSI saw the highest outflows to the tune of $5.4 billion, $2.6 billion, and $2.5 billion, respectively, it said.

 

Growing confidence about the growth in the US after Donald Trump's victory in the US presidential elections, along with factors such as a slowdown in urban consumption and capital expenditure in India, were the main reasons for the FII outflows, the brokerage said. The outflows started with the "Sell India, Buy China" trade after the Chinese government announced stimulus measures for its economy in September, JM Financial said, adding that equities in China were trading at less than half the valuations in India.  End

 

US$1 = INR 85.92

 

Reported by Aman Aryan

Edited by Ashish Shirke

 

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