By Gaurav Kulshreshtha | 27 FEBRUARY 2018
The 3rd quarter earnings season just got over. Though the earnings growth at an aggregate level was decent, but it was largely in line with expectations. BSE 100 earnings grew by ~20% YoY against an expectation of ~21% and NIFTY 50 earnings grew by ~16% YoY against an expectation of ~22%.
The reported revenue growth of 13.4% was ahead of expectations of 10.2%, while EBIDTA growth was in line at 17.1%.
Out of the 99 BSE 100 companies that reported earnings, 37 beat Citi analyst earnings estimate, while 44 missed estimates and 18 reported earnings in line with Citi analyst estimates.
Source: Citi Research
With Q3 reported earnings (+19.6%) displaying a decent trend over Q1 (-12.2%) & Q2 (+5.7%), Citi analysts aggregate FY18 earnings estimates have largely sustained through the earnings season without any significant downgrade or upgrade. They expect NIFTY companies to report FY18 full year aggregate earnings growth of 12% YoY (9% YoY for Sensex companies). However, they do point out that there could be some downside risk to these estimates going ahead.
Citi analysts note that this upward trend is being driven by big upward earnings revision in select sectors/companies, that is being offset by a downward bias in the rest.
Earnings that met expectations may help in providing some comfort to the Indian equity investors, amidst the recent bout of volatility that emanated from global equity markets. However, Citi analysts do note that despite the ~6% correction in Indices, valuations (PE ratio) still remain elevated at 1 standard deviation above mean. Citi India Sentiment indicator also remains elevated suggesting modest 1 year returns going forward. They maintain their Dec-18 Sensex target of 36,900 based on 16.5 times forward earnings, suggesting an ~8% upside from current levels.