Jefferies' Chris Wood flags India Inc's earnings downgrades in Q2, steepest since early 2020

Jefferies’ India has also slashed its FY25 earnings estimates for 63 percent of the 121 companies under its coverage.

The correction in the Indian market of late, most particularly in the small to mid-cap spaces has been triggered by the Q2 earnings season which has seen the biggest earnings downgrades for India Inc since early 2020, Jefferies' analyst Christopher Wood's latest Greed & Fear note highlighted.

On the back of these downgrades, Jefferies’ India has also slashed its FY25 earnings estimates for 63 percent of the 121 companies under its coverage which have reported Q2 earnings results so far, also marking the the highest downgrade ratio since early 2020. According to the Chris Wood, the earnings downgrades for India Inc reflect the impact of a cyclical slowdown which has been denting earnings growth.

Though concerns over earnings growth and foreign outflows may put short-term pressure on the market, domestic investor participation remains strong. Jefferies also noted a spike in equity supply in the market which has surged to around $7 billion per month, totaling about $60 billion year-to-date. This increased supply is now meeting robust domestic demand, signaling a more balanced market environment.

Banking on these levers, Wood retained his long-term bullish stance on Indian equities, albeit with some caution. He views the recent market correction as healthy, most particularly as it has impacted the most expensive part of the market.

Woods also remains optimistic over prospects for private sector banks, the relatively inexpensive pocket in the market that has recently started to outperform amidst expectations of a potential cut in the cash reserve ratio (CRR) by the Reserve Bank of India in coming months.

Follow our live blog for all the market action

Jefferies’ Indian banking analyst Prakhar Sharma also higlighted that the RBI’s change of stance on liquidity, from withdrawal to a neutral position, should abate concerns for the sector. "Also the growth rates between credit and deposit growth have now converged compared with a peak gap of 400 basis points over the past year. This, along with better deposit growth and easier liquidity, should be supportive of banks’ net interest margins," the Greed and Fear note stated.

Meanwhile, Jefferies has also held on to its forecast of a $10 trillion market capitalization for India by 2030. Aashish Agarwal, head of Jefferies India, highlighted that while valuations may seem elevated, they underscore India’s robust growth outlook. He attributed market resilience to the rise of retail investors, suggesting that foreign investors often view India as costly due to focusing on legacy sectors like financials, consumer staples, and tech services.

Also Read | Jefferies' Chris Wood says India's stocks more resilient amid risk of US downturn

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.