While nearly a third of these companies reported a deceleration in sales growth in Q2, in Q3 half of the stocks reported an acceleration in top-line growth trends.

Mumbai: With companies reporting tepid top line growth, there are more earnings downgrades than upgrades in the current results session

For the results declared so far, 57 per cent of companies have seen consensus FY21 EPS (earnings per share) estimates being cut by analysts.

Interestingly, large-cap companies are seeing more earnings cut than small and mid-cap firms (SMIDS), even as mid-cap and small-cap stocks are ruling at a premium to large companies.

Earnings expectations are largely pushed down in companies in sectors like power, retail, FMCG and cement, while companeis in telecom, agrichem, auto and NBFC sectors are seeing upgrades in earnings.

“We continue to see downside risks to consensus Nifty EPS growth of 28 per cent for FY21, said Emkay Global in a report.  “Our preference stays with consumption themes such as auto and consumer goods – which could be the earliest beneficiaries of any turn in consumer sentiment. Our Underweight positions are in engineering/ capital goods and financials remain,” the report further said.

An analysis shows that there is broad-based stabilisation in top-line growth but overall numbers still remains weak, analysts said.

At an aggregate level, the top line across all companies that have reported was flat YoY – showing continued weakness but arresting the declining trajectory of previous quarters. Top-line growth for SMIDs is still positive though.

While nearly a third of these companies reported a deceleration in sales growth in Q2, in Q3 half of the stocks reported an acceleration in top-line growth trends.

The improvement in top-line trajectory was evident in agri-chem, auto, power and retail, while  pharma, media and chemicals, while most companies in other sectors report a weak top-line trajectory.

The aggregate operating profit growth remains stable at 10 per cent YoY,  indicating improvement  in margin trajectory.

However, a disaggregated analysis shows that nearly 57 per cent of the companies have seen a slowdown in operating profit growth as against 54 per cent in the previous quarter.

Most companies in speciality chemical, media and insurance showed a slowdown in their operating profit trajectory.

The companies in retail, power, FMCG and durables largely missed expectations on operating profit, while those in agri-chem and auto largely beat expectations.

“Private banks, NBFC, cement and IT sectors have met expectations, while consumer has delivered a beat,” Motilal Oswal Financial Services said.

It says there are several concerns on corporate growth, capping the upside in market.

“The ongoing 3QFY20 results season  has highlighted several concerns, especially on asset quality and elevated slippages in some banks. We expect the market to stay narrow until the emergence of greater evidence of growth recovery. Meanwhile, select sectors with better earnings visibility will continue enjoying valuation premium over the broader markets,” it further said.