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The June 2022 quarter earnings season is coming to an end and investors can take heart from the early trends. An across-the-board rise in input costs has crimped profit margins, driving cuts in earnings estimates. However, the earnings downgrades have been modest till now. The aggregate earnings estimate of the Nifty 50 index has been cut by around 2 percent each for the current and next fiscal years.
BofA Securities warns that the Street may continue to pare earnings estimates amid concerns about global economic growth. This can cap gains in equity markets.
“With stretched valuations, still receding liquidity and downward momentum in earnings revision, legs to the current run-up may be limited,” warn analysts at Elara Securities.
However, the downgrades may not be sharp. The headwinds that are clouding the earnings outlook such as a steep rise in crude oil prices, inflation and rupee depreciation are showing signs of moderation. Brent crude futures are at $94 a barrel in Tuesday’s trading. A month ago, crude futures were hovering at $106 a barrel.
Even so, the energy crunch in Europe and threat of a recession in the US are driving a subtle shift in investment strategies. BofA strategists are warning against export driven companies and are advocating domestic focused sectors such as industrials, consumer staples, financials and automobiles. The reasons are not hard to find.
Export dependent companies such as home textiles are facing demand headwinds and inventory correction at the customers end. Select IT companies have also warned about pockets of slowdown. But incoming data from the domestic market provide scope for optimism. Passenger car sales are holding up and companies are alluding to a decent demand environment. These views are echoed by the companies’ managements in earnings calls and at a recent investor conference.
“Most domestically focused corporates pointed to robust demand outlook, thanks to full reopening post-COVID, government’s infra spend, an overall good monsoon, upcoming festive season, higher industrial utilisation, order backlogs, and continued formalisation of the economy,” Sanjay Chawla, head of research and strategist, Emkay Research, said in a note after the investor conference.
In fact, healthy demand is nudging companies in certain industries to build additional capacities, driving orders for companies dependent on capex. ABB India and Cummins India are some of the beneficiaries. You can read the full story here.
Meanwhile, investors continue to mourn the untimely demise of the ace investor Rakesh Jhunjhunwala. Loved for his unbridled optimism about India and domestic equities, Jhunjhunwala will be missed by both traders and investors.
In in an interview with CNBC-TV18 in 2020, Jhunjhunwala said India is in a long bull market that started in 1981. What made him say this? Will a change in the macro environment alter that view? Read this piece to find out. Also, read about how he never tied himself down to one investing style. And that made his success unique.
Investing insights from our research teamZee Entertainment: Multiple headwinds signal more challenges
Apollo Hospitals: Comeback of elective surgeries supports core business margins
What else are we reading?
China’s chip breakthrough poses strategic dilemma (republished from the FT)
R Sree RamMoneycontrol Pro