Short call | Is the worst of earnings downgrades behind for India Inc? Nazara Tech, Senco Gold in focus

Short call weaves niche topics on equity markets and news developments around stocks

India Inc’s third-quarter earnings was neither too disappointing nor did it surprise investors. The silver lining? Analysts at Emkay Global think the worst of the earnings downgrades might be behind—especially with Nifty already down 13 percent from its September peak. At 19x one-year forward earnings, Nifty’s valuations are now 5 percent below the 10-year average, making them a little more palatable.

The IT and banking sectors put on a solid show, with tech firms enjoying a boost thanks to an improving outlook in key markets like the US. Just a few quarters ago, fears of a slowdown in the US and Europe loomed large. Banks also showed stronger asset quality, though their deposit growth still seems to be a challenge.

Meanwhile, FMCG companies struggled despite the festive season, and most auto players failed to impress. The chemicals sector is still finding its feet, even with some improvement in earnings. On the brighter side, real estate, healthcare, and capital goods stood tall, delivering a positive push to overall earnings growth.

With the Budget throwing in measures to stoke consumer demand, could this be the turning point for India Inc? The answer is not clear yet.

Nazara Technologies (Rs 923, -0.56%)

Reported Q3 numbers

Bull Case: By expanding our gaming ecosystem, partnering with globally recognized IPs, and driving high-impact acquisitions, the firm are well-positioned to establish itself as a truly global gaming leader from India, it said.

Bear Case: The GST Council, in August 2023, amended a law to clarify that all online games involving bets, irrespective of skill or chance, would attract a GST rate of 28 percent on the full value of the bets placed, and not on the gross gaming revenue, from October 1. Following the decision, online gaming companies have been served with huge tax demands that experts say will likely kill the entire industry. Until this overhang is cleared, there is uncertainty surrounding the stock.

Senco Gold (Rs 357.60, -20%)

Shares tanked after dismal Q3 numbers.

Bear Case: Concerns persist over sharp margin volatility, with assuring explanation from the management. Volatility in gold prices, along with subdued urban demand may continue to drag earnings growth.

Bull Case: Despite persisting headwinds, the management has retained its growth outlook of delivering 20% margins, which gains some investor confidence. The management is also hopeful of gradually recouping hereon, sparking hopes of a turnaround in the coming quarters.

(With inputs from Zoya and Vaibhavi)