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India’s earnings season is wrapping up, and cyclicals including energy and materials companies have been among the leaders, as more than half of them managed to meet or beat expectations amid a pandemic and economic upheaval.
With results now in for the vast majority of companies in the S&P BSE 200 Index, energy, technology and materials firms have led the way in this better-than-expected period, with at least 71 per cent in those sectors surpassing estimates, strategists Rupal Agarwal and Anusha Madireddy with Sanford C. Bernstein said in a report on Monday.
Earnings and revenue beat ratios have risen sharply compared to last quarter and are well above the five-year averages of 44 per cent and 46 per cent, respectively, the strategists wrote. Just over half of companies also met or topped sales estimates as well, including two-thirds of materials stocks, they said. The median earnings-per-share surprise was 7 per cent, with energy and industrials also leading the way in that category.
The latest results come amid an increasing disconnect between the rally in Indian stocks and an economy ravaged by the coronavirus. The benchmark S&P BSE Sensex rose another 2.7 per cent in August to cap four months of gains in the past five since plunging to a 2016 low in March. The gauges 14-day relative strength indicator touching overbought territory before pulling back on Monday.
GDP shrinks
India’s economy posted the biggest contraction among major economies last quarter, with a recent surge in coronavirus infections weighing on the outlook for any recovery. Gross domestic product shrank 23.9 per cent in the three months to June from a year earlier, the Statistics Ministry said in a report on Monday.
The infection situation also continues to worsen, as India’s Covid-19 fatalities of more than 64,000 surpassed Mexico’s to claim the third-largest death toll globally. And Indian and Chinese troops clashed again along their contested Himalayan border in the latest skirmish between the two sides engaged in a border stand-off since May.
Diminished expectations certainly have played a role in creating lower hurdles, especially for the largest Indian companies. The aggregate net income of 47 firms in the NSE Nifty 50 Index of India’s top companies slumped 40 per cent in the quarter ended June from a year ago to post the worst profit decline in at least 10 years, yet almost two thirds of those companies also met or exceeded estimates.
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