Slowing demand, tighter liquidity a drag on profits, agree analysts; earnings growth this year might not exceed 5%, feel many

Brokerages are likely to cut their expectation of growth in earnings per share (EPS) for large companies to the mid-single digits, due to factors such as higher interest rates, lower domestic demand and higher cost of imported raw material.

The Sensex EPS estimates, based on analyst expectations of the total earnings of 30 large-cap stocks, are already said to have been downgraded by around nine per cent. These are now likely to see another round of cuts once the current quarter results are in, suggest analysts.

Religare Capital Markets suggested, in a report titled ‘Earnings predictability in the downturn’, growth in earnings at no more then five per cent for the current financial year (FY14).

“Sensex EPS estimates have been downgraded by nine per cent since the start of FY14, with the Street currently expecting 10 per cent (lower) earnings growth. Amid a weak economic outlook and falling demand, we expect downgrades to continue, with our top-down earnings growth estimate at five per cent for FY14,” said the report dated this Tuesday, authored by Tirthankar Patnaik, Prerna Singhvi and Saloni Agarwal.

The trio added a look at the previous years suggest analysts are more positive at the beginning of the period, suggesting the positive sentiment might soon wane.

Source: Business Standard

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