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Jefferies cuts FY20 earnings forecast by 9% as growth worries weigh

Jefferies cuts FY20 earnings forecast by 9% as growth worries weigh
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By Mousumi Paul  Aug 30, 2019 8:55:59 AM IST (Updated)

Global brokerage Jefferies has lowered FY20 earnings forecast by 9 percent and 8 percent for Nifty companies as it believes a revival in growth could take time.

Global brokerage Jefferies has lowered FY20 earnings forecast by 9 percent and 8 percent for Nifty companies as it believes a revival in growth could take time.

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"With monetary transmission and cautious corporate commentary, growth and earnings may take time to recover", Jefferies said in a research report. The brokerage has added SBI Life Insurance, LIC Housing Finance, Adani Ports, Indian Oil Corporation, BPCL and Nestle in its portfolio and has deleted Nestle, Titan, KEI Industries, YES Bank and Tata Motors.
According to Jefferies, even though the government has taken measures such as the early recapitalization of PSU banks, the shorter terms fixes, like those for autos, may prove inadequate.
“The lack of fiscal space may prove to a challenge for any meaningful stimulus. Net tax collections rose just 6 percent YoY in Q1FY20, example, and could weigh on expenditure plans too, especially capex, if the government is keen to meet its 3.34 percent deficit target”, the report added.
A revival in growth could take time, therefore, likely weighing on corporate earnings as did in Q1FY20, it said.
The brokerage lowered FY20 earnings forecasts by 9 percent and for the Nifty companies by 8 percent with cuts across the board, especially in financials, autos and materials with staples and retail, where performance was actually resilient, largely unchanged and insurance higher.
Despite the 8 percent pullback in the broader indices from their recent peaks, valuations are no less expensive, said Jefferies. The brokerage remained defensive with a bias for large-caps over mid-caps which are no longer at a premium unlike in the last two years but not cheap either.
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