4Q Nifty Earnings Estimate: First-look of the Lockdown Impact

15 APRIL 2020

  • While a larger impact of the lockdown is expected to be felt in 1QFY21, Citi analysts expect 4QFY20 earnings to provide a preview of the earnings pressures to come.
  • Citi analysts expect Nifty earnings to decline ~20% year-on-year (YoY) in 4QFY20 (up 3% YoY ex-commodities, aided by favorable base effect in Financials). They expect the topline (revenues) to decline ~6% YoY.
  • While Covid-19 related provisions could offset some of the base benefit for financials, telecom companies are expected to report decent earnings growth driven by improvement in ARPU (Average Revenue Per User) in 4QFY20.
  • IT (aided by INR depreciation), consumer staples (aided by up-stocking) and pharma companies are expected to fare modestly, while autos, capital goods, commodities and consumer discretionary companies are expected to report weak earnings in 4QFY20.
  • Source: Company Reports, Bloomberg Consensus Estimates, Citi Research Estimates
  • Domestic mutual funds recorded robust net equity inflows (INR 100bn) in March 2020, despite the benchmark indices declining by over 20% amid highest volatility recorded in more than a decade.
  • Domestic mutual funds provided a powerful backstop to record FII outflows of >USD 10bn from equity markets in March 2020.
  • After crashing 38% from its Feb 2020 peak, equity markets have bounced back~17% from their lows. Citi analysts believe volatility will likely continue and keep their Nifty target unchanged at 10,100 for Mar 2021.
  • Domestic and global updates related to the Covid-19 spread, clarity on the economic impact, DMF flow trends and anticipated changes to India's weightage in MSCI indices would be the key variables to watch out for.

Subject to risk appetite, investors who are underweight equities with respect to their strategic asset allocation, may look at long term opportunities created by recent market correction and invest in a staggered manner.

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