Finance Update

earnings downgrades: Eight out of 10 sectors see earnings downgrades; industrials, tech look good

UBS Securities’ Gautam Chhaochharia expects earnings to pick up over the next two years.

Updated: Mar 27, 2019, 07.21 PM IST

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Downgrades have been led by communications at 24 per cent, materials at 19 per cent and healthcare at 18 per cent.

As the financial year 2019 draws to a close, analysts have downgraded their earnings expectation for eight out of 10 sectors. Industrials and technology sectors have seen earnings upgrade of 11 per cent and 3 per cent, respectively, during the course of the financial year.

Downgrades have been led by communications at 24 per cent, materials at 19 per cent, healthcare at 18 per cent, energy at 16 per cent and consumer discretionary at 13.7 per cent.

Gautam Chhaochharia, Managing Director and Head of Research at UBS Securities, India, expects earnings to pick up over the next two years.

“The market is factoring in a big pickup in earnings cycle next year to year-and-a-half, which can theoretically support the current market valuations,” he told ETMarkets.com in an interview.

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Top 5 Stock Downgrades

Anoop Bhaskar, Head of Equity at IDFC Asset Management, says while the underlying earnings story is improving (better revenue growth trends, corporate banks’ asset quality turning around, etc.), new risks to earnings are also emerging (autos, NBFC).

Consequently, though the direction of the earnings revision is still trending down, broadbased revenue growth indicates robust demand environment, which should help companies raise prices in the future. Also, the corporate bank cycle seems to be bottoming out, which should help reduce loan loss provisions and boost profitability in the future.

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Prakash Poojary
Business Analyst

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