INSUBCONTINENT EXCLUSIVE:
analysts put out at the start of every year.
FY18 was no exception
And probably, FY19 will not be any different
And there is a good reason for that.
When analysts made their earnings forecasts for FY19, for around two-thirds of Nifty50 companies, they
might have made their estimates based on hopes and dreams
often put out their index targets based on such projections, and they tend to create unwarranted euphoria among investors, promoting them to
build in high expectations and allocate more money to equities.
Which is why market veterans suggest investors to go for a bottom-up
approach instead of constantly looking at the index to make investment decisions.
The disaster with earnings projections in FY18 has been
squarely blamed on poor performance by banks
Since, Nifty EPS growth for FY18 has been marked down to nil from 6-7 per cent projected at the beginning of the year, says Edelweiss
year.
Out of the Rs 110 expected addition to FY19 EPS, Rs 76 is projected to be contributed by sectors where earning forecasts are either
too aggressive or high.
Poor show in earnings in last four quarters has led to a 3 per cent downgrade in EPS projections for FY19
But even after incorporating it, EPS growth expectations are still very high at 24.72 per cent
Dreamer, which include sectors where the ask rate for earnings growth is aggressive, nothing less than a day dream; Hopefuls, where hopes
expectations with valuations, we find cement, consumer discretionary and NBFCs are expensive relative to history, with high earnings growth
is building in an EPS forecast for FY19 that is higher than even FY16 numbers), export plays in auto sector (China recovery is seen as
catalyst) and telecom and cement sectors (pricing) in the dreamer category.
Dalal Street is expecting these sectors to see a V-shaped
recovery.
Metals, NBFCs , utilities, pharma, agrochemicals and consumer discretionary sectors come in the Hopefuls bracket, while IT,
downgrades has increased further over the previous two quarters
Sectors with big EPS downgrades have suffered sharp corrections while the ones whose earnings have sustained/improved have rallied.
For the
cement sector, consensus forecasts are ignoring the recent spike in oil prices, which may increase variable cost-to-tonnes ratio in FY19 and
weigh on earnings, unless demand surges.
Among hopefuls, Dalal Street is building in a 20 per cent EPS growth for NBFCs in FY19, which is a
through to maintain margins, the brokerage said.
In case of realists, retail banks, domestic auto companies and industrials are seen as
