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India Equity Research Reports, IPO and Stock News
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The current earnings downgrade cycle in India is 18 months old and
has seen estimates for the next two years cut by 8% and 10%
respectively from peak levels. Note that earnings estimates for MSCI
EM have until last month been left largely unchanged.
But given a challenging macro environment, investors remain skeptical
about street estimates of 17% earnings growth and our lower-than-street
estimates of 14% growth for FY12E.
To this end, we analyzed the likely earnings trajectory, based on past
trends. This included a study of past downgrade cycles, a trend analysis
and a regression model of GDP growth vs. earnings growth. The current
downgrade cycle appears fairly mature in terms of time frame. But the
extent of cuts, while meaningful, has not been as substantive as seen in
prior cycles.
Based on our current macro economic forecasts, and even accounting for
minor downward revisions herein, we believe earnings growth of 10%
should be achievable for FY12E. A recession in the US would
however imply that earnings could decline – a trend seen only twice in
the last 15 years.
Financials and Telecom have led the current earnings downgrade cycle.
Incrementally we believe that Materials, IT services, Industrials and
Consumer Discretionary are most vulnerable to further downgrades. INR
depreciation could partially offset weakness in operating performance for
sectors with global linkages though.
Over the last 15 years, equity markets have typically led the trough in
earnings cycles, with the lead time progressively coming down from
about 4 months to 1 month. This trend will likely repeat itself,
underscoring the importance of keeping an eye on market performance as
much as on earnings to call a revival!
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The current earnings downgrade cycle in India is 18 months old and
has seen estimates for the next two years cut by 8% and 10%
respectively from peak levels. Note that earnings estimates for MSCI
EM have until last month been left largely unchanged.
But given a challenging macro environment, investors remain skeptical
about street estimates of 17% earnings growth and our lower-than-street
estimates of 14% growth for FY12E.
To this end, we analyzed the likely earnings trajectory, based on past
trends. This included a study of past downgrade cycles, a trend analysis
and a regression model of GDP growth vs. earnings growth. The current
downgrade cycle appears fairly mature in terms of time frame. But the
extent of cuts, while meaningful, has not been as substantive as seen in
prior cycles.
Based on our current macro economic forecasts, and even accounting for
minor downward revisions herein, we believe earnings growth of 10%
should be achievable for FY12E. A recession in the US would
however imply that earnings could decline – a trend seen only twice in
the last 15 years.
Financials and Telecom have led the current earnings downgrade cycle.
Incrementally we believe that Materials, IT services, Industrials and
Consumer Discretionary are most vulnerable to further downgrades. INR
depreciation could partially offset weakness in operating performance for
sectors with global linkages though.
Over the last 15 years, equity markets have typically led the trough in
earnings cycles, with the lead time progressively coming down from
about 4 months to 1 month. This trend will likely repeat itself,
underscoring the importance of keeping an eye on market performance as
much as on earnings to call a revival!
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