The relentless selling by foreign investors in Indian stocks in October has continued well into November. After selling over Rs 94,000 crore worth of equity last month, foreign portfolio investors sold more than Rs 22,400 crore this month till November 14. While geopolitical tensions, global economic uncertainties, Donald Trump getting re-elected as US president and stimulus by China to lift its economy have majorly weighed behind the selling, disappointing earnings by many companies in July-September have also emerged as a concern.
In the wake of the selling by foreign investors, the benchmark BSE Sensex as of Thursday's close, has declined almost 10 per cent from its life high of 85,978.25 it touched on September 27, 2024. The mid and smallcap indices too have declined 11 per cent and 9 per cent respectively from their September 24 highs. Despite the correction, analysts warn that valuations in the Indian stock market remain expensive and they look more so in the backdrop of the lackluster quarter gone by for corporate earnings.
According to an analysis by JM Financial Institutional Securities, of the 227 companies out of the 275 companies that it tracks, as many as 45 per cent missed earnings estimates. More importantly, 66 per cent of the companies saw cuts in earnings per share estimates for the current financial year ending March 2025, while 45 per cent of companies saw their price targets cut by analysts. A large percentage of small- and mid-cap companies saw an earnings cut of over 10 per cent.
"There is a slowdown in urban demand across FMCG, retail, auto and mall operators. Besides this, chemicals, consumer durables and building materials have seen a moderation in demand. MFIs (microfinance institutions), select private sector banks and non-banking finance companies are witnessing stress in their unsecured book," noted Venkatesh Balasubramaniam MD at JM Financial Institutional Securities.
A recent analysis of second-quarter earnings by Motilal Oswal Financial Services too signaled times were challenging.
It noted that the earnings growth of 166 companies under its coverage declined 8 per cent year-on-year in the July-September quarter, which was the lowest in 17 quarters.
"The aggregate performance was hit by a sharp drag from global commodities," pointed out Gautam Duggad, head of research (institutional equities) at Motilal Oswal.
In recent times, signs of a slowdown have been rising. Several large fast-moving consumer goods companies pointed to slowing demand in urban markets, while rural markets were seeing steady recovery. According to the latest data by the Society of Indian Automobile Manufacturers (SIAM), passenger vehicles saw a marginal 0.9 per cent growth in October, despite the festive period of Navratri and Diwali. Retailers Association of India's business survey showed sales pan-India grew only 5 per cent from a year ago in September 2024.
The earnings spread has deteriorated, with only 62 per cent of Motilal Oswal's coverage universe either meeting or exceeding profit expectations, noted the broking firm.
"Consumption has emerged as a weak spot while select segments of BFSI are seeing asset-quality stress," he noted.
Overall, the earnings per share estimates for the Nifty50 have seen a 7 per cent downward revision in the last six months, reducing the expected earnings growth for 2024-25 to just 5 per cent, the weakest since the financial year 2020, according to Motilal Oswal.