Q2 report cards show better profit than expected, stem earnings downgrades

Corporate report cards have largely managed to beat Dalal Street’s expectations on the profitability front.

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Companies that have surpassed expectations on the profit front included JSW Steel, SBI, Maruti Suzuki, Asian Paints, ICICI Bank and ITC, among others.
Mumbai: Halfway through the quarterly earnings season, corporate report cards have largely managed to beat Dalal Street’s expectations on the profitability front, with commentaries also turning positive.

This has led to expectations that better times could be ahead in terms of earnings, and there could be more upgrades compared with downgrades on the earnings front.

Motilal Oswal Financial Services (MOFSL) in a report pointed out that among the 92 MOFSL universe and 28 Nifty companies that have announced earnings till November 2, sales for the Nifty companies have degrown at (-) 0.6 per cent on a year-on-year (YoY) basis, while Ebitda has expanded 9.1 per cent and net profit 12.4 per cent against MOFSL’s estimates of (-) 0.4 per cent, 1.7 per cent and (-) 1.8 per cent YoY growth, respectively.


Excluding corporate-focused private banks, Nifty sales, Ebitda and profit growth stood at (-) 1.6 per cent, 4 per cent and 11.3 per cent YoY versus MOFSL’s estimates of -1.2 per cent, (-) 0.6 per cent and (-) 0.7 per cent YoY, respectively.

Of the 28 Nifty companies that have announced results, 21 surpassed, three missed and three met MOFSL’s expectations on the profit front. On the Ebitda front, nine companies surpassed, 4 missed and 14 met expectations.


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Companies that have surpassed expectations on the profit front included JSW Steel, SBI, Maruti Suzuki, Asian Paints, ICICI Bank and ITC, among others.


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“While aggregate earnings have been in line with estimates, commentaries are turning incrementally positive, especially on the consumption front,” MOFSL said.

“The reduction in corporate tax has largely resulted in better-than-expected profit delivery and restricted the pace of earnings downgrades. This, combined with various government announcements to revive the troubled sectors, has helped revive market sentiment,” it added.

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Corporate earnings so far have beat expectations, helping the market stay upbeat and scale record highs amid optimism on the US-China trade deal, analysts said.

“It’s an exp ectation beat for sure,” said Vinod Karki, Head of Strategy at ICICI Securities. “If you look at the earnings upgrade-downgrade scenario, it would seem there are more upgrades or neutrals compared with downgrades. This means the consensus was more pessimistic about corporate earnings,” Karki said.

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For the MOFSL universe, though, the earnings upgrade-downgrade ratio has been balanced so far, with 31 MOFSL universe companies witnessing upgrades of more than 3 per cent and 29 seeing downgrades of more than 3 per cent, indicating a revival in the earnings momentum.

“However, things are not as bad as consensus was expecting. This is reflecting in the market as well. The earnings season has helped support the market,” he said.
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