Earnings forecasts for the biggest Indian companies are declining again as profits grow at the slowest pace since the financial crisis, according to Credit Suisse Group AG.
Consensus earnings-per-share estimates for the 50 companies on the CNX Nifty Index are dropping, after rising in January, Credit Suisse analysts Neelkanth Mishra and Ravi Shankar wrote in a report dated yesterday. Forecasts for earnings growth may drop to 7-8 percent for the fiscal year ending March 31 as wages and borrowing costs rise faster than revenue, they wrote. Projections for 2014 profits may drop as much as 10 percent, the report said.
Profits at 43 percent of the 30 companies on the BSE India Sensitive Index trailed estimates in the three months through Dec. 31, compared with 40 percent in the previous two quarters, data compiled by Bloomberg show. Gross domestic product expansion this fiscal year will be the weakest in a decade, the statistics office on Feb. 7, while data on Feb. 12 showed industrial output fell for a second month in December.
“The economic slowdown is deepening and widening,” the report said. “While the slowdown in investment activity has been prolonged and well-flagged, commentary from companies did not suggest any bottoming out or inflection. Results showed that construction activity, steel and cement demand and even order books slowed during the quarter.”
More cuts in consensus earnings estimates are expected in financial, materials and industrial stocks including State Bank of India, Tata Steel Ltd. and Steel Authority of India Ltd, according to the report. The nation’s banking system is “still in poor health,” the analysts wrote.
Prime Minister Manmohan Singh embarked on a policy overhaul in September to revive investment after corruption allegations against officials and parliamentary gridlock hurt his development agenda. The government opened retail and aviation to more foreign participation, eased caps on capital inflows and set up a panel to accelerate infrastructure projects. Diesel prices were partially freed from state control last month to limit fuel subsidies.
Finance Minister Palaniappan Chidambaram, who unveils the annual budget on Feb. 28, has vowed spending curbs to narrow a record deficit, avert a credit rating downgrade and damp inflation. India cut its federal borrowing for the year ending March 31 as it raised as much as 220 billion rupees ($4.1 billion) selling stakes in state companies. The government canceled a 120 billion rupee bond sale scheduled for Feb. 22, the last for the year, the finance ministry said yesterday.
“Gains from the sharp rally in investment-driven stocks that started on 6 Sept. 2012 -- around the time that the government action on economic reforms grabbed headlines -- have already disappeared,” the report said.
The Sensex dropped 0.1 percent 19,489.55 at 10:11 a.m. in Mumbai. The measure is valued at 13.6 times estimated earnings for the year ending March 2014, down from the year’s peak of 13.9 times on Jan. 25, when the gauge closed at a two-high, data compiled by Bloomberg show.