September 2024 Mid-Quarter Review – Highest Downgrade Ratio Since 2020
Analysts at Jefferies have reduced their earnings estimates for more than 60% of the 98 companies they cover that have reported results so far.
Earnings outcomes have been affected by above-normal rainfall and weak government spending.
A clearer trend is expected to emerge in the December quarter, although some slowdown seems likely.
The earnings cuts by Jefferies analysts suggest a 2.2-2.5% reduction in Nifty earnings estimates for FY25-26 during this results season.
They now expect Nifty’s FY25 earnings per share (EPS) growth to be around 10%.
Equity Supply Catching Up With Demand
There has been a significant increase in equity supply, reaching $7 billion per month over the last four months, which totals $60 billion for the year so far.
This increase in supply is now meeting strong domestic demand for equities.
As a percentage of household savings, equity flows in 2024 are approaching levels seen in OECD countries.
Jefferies advises caution regarding equities at this time.
The sectors they favor are banks, two-wheelers, healthcare, and telecom, which are rated as key overweight positions.
Adjustments in Sector Ratings
After reviewing the results, Jefferies has raised the Information Technology (IT) sector to a neutral rating by adding Coforge to their model portfolio.
This change also reflects improved economic data from the US and a lower likelihood of steep rate cuts by the Federal Reserve.
They have downgraded consumer staples to a neutral position, specifically reducing their stake in Godrej Consumer.
Other changes include swapping Max Healthcare for Apollo Hospitals, as Max Healthcare offers better growth prospects through new bed additions and acquisitions at similar EV/EBITDA valuations.
