January-March earnings may disappoint, expect downgrades: Mahesh Patil of Aditya Birla MF

The first quarter earnings of the new financial year could disappoint investors and trigger a downward revision of earnings expectations for Nifty 50 companies, Mahesh Patil, chief investment officer – equities at Aditya Birla Sun Life Mutual Fund told CNBC-TV18 in an interview on March 31.

Patil expressed his concern about the impact of the surge in global commodity prices and likely slowdown in global growth due to risk aversion caused by Russia’s invasion of Ukraine in February. The war has caused a surge in global commodities from crude oil to wheat due to the sanctions imposed on Russia by Western economies.

“Prior to the Russia-Ukraine war, we were seeing 17 percent earnings growth in FY23 but we could see 3-4 percent cut now,” Patil said.

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Taking into consideration the expectations of earnings cut and the fact that the Nifty 50 ended the turbulent March quarter largely flat, Patil believes that there is room for contraction in the price-to-earnings multiple of the Nifty 50 index.

“Market looks slightly expensive from a near-term perspective,” Patil said. The Nifty 50 index is currently trading at above 20 times one-year forward earnings, making it one of the most expensive markets in the world.

In the automobile space, Patil said that value is emerging from a medium-term perspective given prospects of supply-side issues receding and demand improving. “I think it’s time to start looking at the auto sector from a medium-term point of view,” Patil said.

The fund manager expects rural demand to improve in the coming quarters after the recent slowdown aided by the rise in agricultural product prices caused by the Russia-Ukraine war.

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Patil also batted for power stocks as he believes that the sector is offering good risk-reward for investors. The power sector’s earnings stability and visibility in the current turbulent environment make stocks in the space good value propositions, Patil said.

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