BofA Braces For Slower India Inc. Earnings Growth After In-Line Third Quarter

Bank of America expects Indian companies' earnings growth to slow down going ahead, after the earnings tracked by the brokerage were largely in line in the third quarter, led by healthcare.

Starting in the fourth quarter of the current fiscal, Nifty 50 and NSE 200 companies could see stable margins and execution pickup, analysts at BofA said in a note. "But select capex-oriented like steel and cement could limit Nifty earnings growth to 13-14%."

In a cyclical downturn, BofA continues to see current valuations as expensive. However, there are pockets of opportunity across consumption-focused and defensive sectors like staples, autos, financials, telecom and healthcare as they could benefit from consumption stimulus tailwinds, it said.

Non-banking financial companies could be the key beneficiaries of the rate cut cycle, BofA said. "Rate cuts combined with any steps by RBI to ease domestic liquidity should provide net interest margin tailwinds for NBCs."

At the NSE 200 index, 182 companies totaling 96% of its free float market cap have reported results so far, with 59% of them missing estimates. "Index is tracking 4% beat to the earnings."

Nifty stocks largely reported third-quarter earnings inline led by healthcare, telecom and financials. Earnings in the benchmark index were dragged by autos and energy. "Overall, 56% companies missed street earnings estimates."

India's recent underperformance could reverse in the coming months, but unlike popular commentary, the recovery will not be led by inflows from global funds, according to Morgan Stanley.

Most market participants await a turn in foreign institutional flows, strategists at Morgan Stanley said. "But what will move the share prices up is an inflexion in the confidence on growth, not flows."

Benchmark indices — Nifty 50 and the Sensex — have fallen 13% and 11.8%, respectively, from the previous peak. During the same period, the small and mid-cap indices fell as much as 22% and 18.4%, respectively.