Earnings upgrade in the last one year are emanating from domestic cyclicals, internet stocks while the downgrades are driven by defensives and commodities, ICICI Securities said in a report.
Bulk of the earnings upgrade over the past one year has been driven by stocks related to domestic cyclical demand (financials, consumer discretionary, auto, tobacco, industrials) and internet stocks.
On the flip side, bulk of the downgrades was driven by stocks related to defensive sectors (IT, healthcare, staples) and commodities (metals, cement).
“Given the nature of the economic recovery in India, which is led by growth in ‘gross fixed capital formation’ or capex cycle, we expect the earnings upgrade cycle to continue for domestic cyclicals,” ICICI Securities said.
Global economic environment continues to be uncertain and could weigh on earnings revision of the stocks related to global economy.
The aggregate profit pool estimate of 600 stocks for FY24 currently stands at Rs 12.75 trillion as compared to Rs 13.3 trillion a year ago.
The 4 per cent downgrade to aggregate profit pool appears reasonable given the shocks such as the massive QT cycle, Russia-Ukraine war and banking crisis in DMs, the report said.
Also, the bulk of earnings upgrades over the past one year have been driven by domestic cyclicals and internet stocks.
Overall, the market cap of the 600 stocks rose by 28 per cent over the last one year to reach Rs 275 trillion with bulk of market cap expansion happening over the past three months.
The rapid expansion in market cap over the recent past is likely due to a sharp decline in ‘equity risk premium’ and benign ‘risk-free rate’ environment.
Top stocks that have witnessed maximum consensus upgrades over the last one year belong to domestic cyclical sectors such as financials, consumer discretionary, auto, industrials and internet stocks.
Top stocks that have witnessed the maximum consensus downgrades are related to defensive sectors (IT, healthcare, consumer, telecom) and commodities (metals, cement), the report said.
(Sanjeev Sharma can be reached at sanjeev.s@ians.in)
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