Tepid earnings growth in September quarter an Asia-wide problem: Nomura

Earnings growth India Inc, September quarter earnings: Tepid earnings growth in the September 2024 quarter (Q2-FY25 / Q3-CY24) is not restricted to India, according to analysts at Nomura, who suggest this has been the case with most Asia ex-Japan (AeJ) markets in the quarter gone by.

 

“The September 2024 quarter earnings season hasn’t been up to scratch with more misses than beats at the AeJ level. However, on a weighted basis, results season is not that bad contrary to what is suggested by simple beat-miss ratio. Large-cap index stocks, especially in MSCI China, have had a good earnings season so far,” wrote Chetan Seth, Ankit Yadav and Anshuman Agarwal of Nomura in a recent note.

 

 

Sample this.

 

Of the 87 Indian companies under Nomura's coverage that are also part of the MSCI indices and have at least three analyst estimates, September 2024 quarter results of 48 companies have missed forecast / estimates, while 29 beat earnings estimates and 10 reported in-line numbers. 

 

China that has announced stimulus measures off-late to prop up its economy, saw 49 out of 87 such companies miss estimates / forecast in the recently concluded quarter, Nomura said. 

   

The only solace as regards India, Nomura data suggests, is that the beat-miss ratio (number of companies that beat the forecast minus the number of companies that missed, expressed as a percentage of the total sample) at -22 per cent is among the lowest across Asia-exJ.

 

“Although overall AeJ’s beat-miss ratio shows more misses than beats on a simple count basis, large-cap tech results in China have been generally better-than-expected. Earnings revisions from MSCI China companies are also positive quarter till date (QTD) with CY24 adjusted earnings up 1.7 per cent,” the Nomura report said. 

 

The culprit that dented earnings across most Asian countries, according to G Chokkalingam, founder and head of research at Equinomics Research, has been high interest rates amid sticky inflation that led to an overall economic slowdown.

 

“Most Asian economies had to deal with multiple pain points in the last few months – starting with high interest rates, elevated inflation, geopolitical issues that led to an overall economic slowdown. All this impacted demand and in turn corporate profitability across most Asian companies and stock markets,” he said.

 

At the bourses, meanwhile, the Nifty 50 index has slipped around 11 per cent from its peak. The fall in the mid-and small-caps has been sharper, with both the indices slipping around 11 per cent each, data shows.

 

While analysts at Nomura expect the Asian markets to stage a recovery from their current oversold levels, those back home do not expect the recovery to last for long as FIIs continue to sell. A sustained recovery in the markets, according to V K Vijayakumar, chief investment strategist at Geojit Financial Services, can only happen if the earnings improve. 

 

“An important takeaway from the recent market trend is that a quick and sharp recovery is not in sight. The momentum that drove the market to its record peak (26,216 levels) in September is gone. There can be recoveries that are unlikely to sustain given that the FII selling, and concerns surrounding the weak earnings growth feared in FY25. At best, the market may consolidate around the present levels with sideways movement,” he said.

 

Meanwhile, according to a note by JM Financial, 66 per cent companies under their coverage saw earnings per share (EPS) cuts for FY25, and 45 per cent of the companies’ stocks saw target price cuts post their Q2-FY25 numbers. 

 

“For FY25, a larger percentage of small and midcaps (SMIDs) witnessed EPS cuts (of over 0 per cent, 3 per cent, 5 per cent and 10 per cent), and a larger percentage of SMIDs saw over 10 per cent EPS cuts,” the note said.