India’s Q3 earnings disappointment belies market rally, GDP growth
Thursday, 19 February 2015 00:00
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MUMBAI/BENGALURU (Reuters): Earnings of India’s largest companies fell more than expected in the latest quarter, adding to skepticism over a stock market rally that started in early 2014 and official figures showing the country’s economic growth outpaced China’s.
The combined net income of 100 firms with a market valuation of more than $100 million dropped 6% in the three months ended in December from a year earlier. That compares with a 0.5% rise expected by analysts covering the companies. It was also the first decline in at least 18 quarters since Thomson Reuters started compiling the earnings data.
It was the third consecutive quarter that profits had failed to match up to expectations, meaning companies have disappointed each quarter since Prime Minister Narendra Modi was elected in May last year, a victory that drove share prices to record highs. More than half of Indian firms undershot earnings forecasts, including some of the biggest: Reliance Industries, Tata Motors and bellwether engineering firm Larsen & Toubro. The stakes are high for Modi’s government, due to present its budget later this month.
India said on Feb 10 that the economy grew 7.5% in October-December from a year earlier, beating China’s 7.3%, after government statisticians changed the way they measure gross domestic product. That confounded economists and corporations still suffering from slack demand. Analysts over the past month have cut their net profit forecasts for large and mid-sized companies by 2.8% on average, Thomson Reuters data shows. That’s double the 1.4% cut in forecasts across the Asia-Pacific.
“This has been the worst quarter in recent memory, with so many large caps disappointing,” said G. Chokkalingam, founder of Mumbai-based research and fund advisory firm Equinomics. “The economy had better kick start after the budget, or otherwise we are looking for any reason to trim positions.”
