Dalal Street Braces For More Jitters As Earnings Likely To Falter Amid Outflow Woes

Investors in Indian stocks might be in for more turbulence amid economic concerns and foreign flows as India Inc. will likely post muted earnings for the second quarter.

India's blue-chip companies will kick-start reporting the results of their second-quarter earnings from Oct. 10, led by Tata Consultancy Services Ltd.

The second quarter earnings of Nifty companies will likely remain flat, and any margin tailwinds are likely to retreat due to a high base, according to analysts.

The weak top line to weigh on profits, and the earnings slowdown seen in the first quarter is likely to persist in the second quarter, according to Nuvama Institutional Equities. A further slowdown in demand from weak levels is concerning, particularly given it is being led by volumes and domestic sectors, it said.

Nifty EPS is likely to grow 3% in the second half of the current fiscal, posing a downgrade risk to the fiscal consensus growth, Nuvama said. "This, along with elevated valuations, warrants caution."

Kotak Institutional Equities expects the second quarter net profit of BSE Sensex stock to rise 5.3% year-on-year and 2.7% sequentially. Oil, gas, and consumable fuel sectors, commodity chemicals, construction materials, and the real estate sectors will report declines in net income, Kotak said.

Additionally, analysts have cut the number of stocks with a 'buy' call, while the number of 'hold' has seen an uptick, dimming the growth outlook for these companies. The number of stocks on the NSE Nifty 200 with a consensus ‘buy’ rating totalled 61 as of September end, the lowest in at least a decade, according to Bloomberg.

The muted growth in earnings will only add to the woes that domestic investors face after a record-breaking rally. Monetary stimulus unleashed by China has sparked a wave of tactical FII outflows from India.

Foreign investors have offloaded over Rs 50,000 crore from domestic stocks in the last six sessions.

However, domestic institutions continue to pile on to any offloading by foreign investors to buy on dips. During the same period, domestic investors have mopped up stocks worth Rs 53,000 crore.

China's CSI 300 is up 22% from its September lows to enter a technical bull market, according to Bloomberg. This led China to regain the influence it lost for over 10 months in the MSCI Emerging Market index.

This rally comes after the country unleashed a series of measures, including interest rate cuts, liquidity for banks, and incentives for homebuyers. However, in the latest briefing, China held back in unleashing more stimulus while promising further support for growth.

India's bull-bear index—a market sentiment indicator—fell to the neutral zone from the extreme bullish zone a week ago, CLSA said in a note. The index reading was 54% bullish on Friday, down from 97% bullish a week ago.

The NSE Nifty 50 and the 30-stock BSE Sensex have risen 14% and 12.3%, respectively, so far this year, making them the 12th and 13th best-performing Asian indices.

In the last six sessions, Nifty and Sensex have declined by 5.2% and 5.1%, respectively. China's benchmark CSI 300 is trading at a price-to-earnings ratio of 16, while India's Nifty 50 is trading at 24.

Markets were affected by measures introduced by the securities markets regulator under its futures and options framework to strengthen the equity index derivatives market.

Trading volumes in India's futures and options segment could be halved after SEBI's new norms take effect, people familiar with the matter told NDTV Profit.

Additionally, concerns about a slowing economy arose as tax collection decreased. Gross Goods and Services Tax collection growth in September reached 6.5%, marking a 40-month low. The output growth of the eight core sectors declined in the latest reading.