BofA sees 40% cut in earnings estimates

THE STREET'S OPTIMISTIC earnings growth estimates for FY24 and FY25, of 17% and 16% respectively, for the Nifty set of companies could be cut by 40%, Bank of America (BofA) Securities said on Thursday citing, among other factors, a recession in the US. The brokerage noted there were already signs of earnings weakening in the wake of the global slowdown.

BofA strategists added that a delayed recovery in rural India could also hurt earnings as could the potential peaking of demand in urban India. They also observed that the volatility in prices of commodities posed a risk to a revival in margins.

Early results for the March quarter show some companies are struggling to grow volumes while others are not able to command strong realisations. While these are early days, net profits for a sample of 262 companies (excluding banks and financials) were down 5% year-on-year in the March quarter as operating margins contracted and interest costs jumped 50%y-o-y. Revenues rose by a tepid 8% y-o-y. Seen sequentially, profits were up a good 28%, but not on the back of topline growth, which was up just 2% quarter-on-quarter. The bottom line was boosted by a much slower increase in interest costs of 12% and by a fall in raw material costs and other expenses.