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Last Updated : Oct 09, 2019 02:10 PM IST | Source: Moneycontrol.com

Will Q2 numbers lift market sentiment? Here's what brokerages say

"For Q2FY20, we forecast our coverage universe’s revenue and profit to decline by 3 percent and 6 percent, respectively," said brokerage Edelweiss Securities.

Nishant Kumar @Nishantopines

The mood of the market looks gloomy as the equity benchmarks have lost about 4 percent during the last six consecutive sessions and the hopes that the upcoming earnings will be a relief may be misplaced, brokerages say.

The exuberance after the corporate tax cut has fizzled out, and all eyes are now on September quarter earnings which will steer the course of the market in the near-term.

But, many brokerages are of the view that the picture is more sobering.

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"For Q2FY20, we forecast our coverage universe’s revenue and profit to decline by 3 percent and 6 percent, respectively," said brokerage Edelweiss Securities.

This is a sharp moderation from mid-teens growth in FY19 and 7-8 percent growth in Q1FY20.

"Even excluding volatile components such as commodities and corporate banks - which will incur one-time write-down of deferred tax assets - topline and profit growth is estimated at 3 percent and 1 percent, respectively. The top-line growth of most sectors is likely to moderate with only pharma and banks posting over 10 percent growth. Q2FY20 top-line growth of our coverage universe, excluding banks and commodities, is likely to be the lowest in a decade," said Edelweiss.

However, the brokerage sees a good growth rate of over 15 percent for oil marketing companies, utilities, cement, retail banks and consumers.

But, IT and industrials, whose profit growth has slowed significantly from mid-teens growth in FY19 to 2 percent and 5-6 percent respectively, may see a bad growth of 0-5 percent, the estimates of Edelweiss show.

"We estimate PAT of Nifty companies to contract 4 percent year-on-year (YoY) in Q2FY20 against 2 percent growth in Q1FY20 and 10 percent in FY19. While a part of the hit in Q2 is likely to be on account of a one-time markdown of Deferred Tax Assets (DTA) of corporate banks. Even excluding it, earnings momentum is still soft and earnings upgrades are likely to be modest," Edelweiss Securities said.

Kotak Securities, too, expects softer numbers. The brokerage expects profit before tax (PBT) of the BSE-30 Index to decline by 1.4 percent YoY and that of Nifty-50 Index to decline by 4.4 percent YoY.

"We expect PBT for the KIE (Kotak Institutional Equities) coverage universe to decline by 4.6 percent YoY in Q2FY20, led by a YoY decline in PBT in automobiles (lower sales volumes and margin compression due to increase in discounts), metals & mining (sluggish demand, weak realizations and volumes on a YoY basis), oil, gas & consumable fuels (dragged by decline in volume growth for Coal India and lower net crude realizations for ONGC) and telecommunication services (seasonal weakness)," Kotak Securities said.

However, the brokerage expects a strong YoY growth in PBT for banks (led by Axis Bank, ICICI Bank and SBI), construction materials (YoY improvement in profitability but deterioration on a sequential basis), diversified financials (steady operating performance aided by a decline in the marginal cost of funds for large players) and pharmaceuticals (strong quarter for the domestic formulation segment).

Brokerage firm Prabhudas Lilladher estimates a decline of 0.3 percent in sales, an increase of 3 percent in EBIDTA and 5.9 percent in PBT for Q2FY20 for its coverage universe.

As per its estimates, agri, aviation, pharma and media will show good sales growth while auto, metals and oil and gas will be laggards.

Nifty EPS (earnings per share) is likely to show modest growth, the brokerage says as the slowdown impact is deep and corporate profit growth estimates have not gone up despite tax cuts.

"Against earnings growth of 8.5 percent in FY19, Nifty EPS is expected to increase by 16.9 percent in FY20 and 23.5 percent in FY21 to Rs 521.9 and Rs 644.5 which is 6.5 percent and 4.4 percent lower than consensus. We note that despite the cut in corporate tax rates, the EPS for FY20 has not seen any appreciable increase," said the brokerage.

Nifty is currently trading at 19.4 times one-year forward earnings which shows a 6 percent premium to long term average of 18.3 in comparison to 7 percent premium in August and 12 percent in July.

"With more and more number of banks, NBFC coming under cloud, pain in the real economy is evident. We expect near-term volatility to sustain given fears of rising corporate defaults and its impact spreading to more segments and sectors. We retain our 12-month Nifty target of 12,488 which values markets at 19 times FY21 EPS," Prabhudas Lilladher said.

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First Published on Oct 9, 2019 02:10 pm
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