SENSEX EPS LIKELY TO BE UNDER Rs 1,300

The earnings per share for the BSE benchmark Sensex for the 2013-14 fiscal is likely to be under Rs 1,300, Bank of America Merrill Lynch research said today. According to the financial services major, FY13 Sensex EPS has been downgraded from Rs 1,510 to Rs 1,175, and FY14 Sensex EPS is likely to be downgraded to below Rs 1,300.
"Over the past 2 years, we have sounded like a broken record with our theme that earnings is likely to be downgraded. Unfortunately, we were right, with FY13 Sensex EPS likely to come in below Rs 1,200...we expect FY14 Sensex EPS to be downgraded below Rs 1,300," BofA ML said. Mainly, two factors would lead to downgrades in FY14 -- concentration risk and delay in recovery. Concentration risk is the main reason behind the Sensex EPS downgrade as two sectors (financials and energy) account for half of the profit growth in FY14 and just five stocks (ONGC, ICICI Bank, HDFC Bank, State Bank, Tata Steel) account for nearly half of the profit growth, it said.
Another cause of concern is the delay in recovery. So far, rate cuts have been slow and sales growth in FY14 will continue to be weak and hence the expected recovery in margins may disappoint, BofA ML said. A sector-wise analysis showed that autos, metals & mining, telecom and energy drove downgrades in Sensex FY13 in last 12 months. The report further noted financials and energy account for 50 per cent of FY14 EPS growth. "Sensex EPS growth could disappoint if these two sectors see downgrades," it said. Despite a weaker-than-expected macro and an expected delayed recovery, FY14 expected sales growth is likely to be higher than FY13, the BofA ML report said.