A man (R) watches a large screen displaying India's benchmark share index on the facade of the Bombay Stock Exchange (BSE). Like in other major markets, earnings in India weren’t as bad as feared as companies slashed costs to save cash. Image Credit: REUTERS

Mumbai: You wouldn’t expect analysts to draw comfort when a nation’s top companies post the worst profit decline in at least 10 years. The pandemic has made that a reality in India.

While aggregate net income of 47 NSE Nifty 50 Index members slumped 40% in the quarter ended June from a year ago, nearly two thirds of these companies met or exceeded estimates, data compiled by Bloomberg show. For analysts struggling to justify the stock market’s rebound since March, that passes for good news.

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“To be honest, we had written off this quarter,” said Abhimanyu Sofat, head of research at IIFL Securities Ltd. “But majority of the Nifty companies have come with better-than-expected results.”

Like in other major markets, earnings in India weren’t as bad as feared as companies slashed costs to save cash, with a reduction in estimates ahead of the results season also making it easier to beat them. Analysts have cut the 12-month average profit estimates for Nifty members by 20% since January on concerns about a patchy recovery and climbing virus numbers.

“Even if things improve in the remaining quarters, full year FY21 will look flattish at best, with risks tilted toward the downside” because of rising virus cases and some states battling a second wave of lockdowns, said Gautam Duggad, head of research at Motilal Oswal Securities Ltd. in Mumbai.

Still, not everyone is putting emphasis on past performance. Some brokers have switched to publishing two-year price targets to eliminate the short-term noise in their research. Optimists say the market has priced in a broad-based earnings recovery to begin in the fiscal year starting next April.

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“Corporate earnings will recover in 2022, and the market is looking at that is my sense,” said Sumeet Rohra, a fund manager at Smartsun Capital Pte in Singapore. “Pockets of the market have huge potential.”

Only three Nifty 50 companies including Coal India Ltd., Oil & Natural Gas Corp. and Zee Entertainment Enterprises Ltd. have yet to report results. The regulator has extended the timeline for reporting June-quarter earnings till Sept. 15 amid the pandemic.