An analysis by ETMarkets of companies with a minimum market capitalization of Rs 500 crore showed that at least 21 of them have seen profits decline in each of the last four quarters, and their stocks have given negative returns in the last 1 year.
Of these 21 companies, five belong to the pharmaceutical sector and three to speciality chemicals.
For most companies, FY23 was a tough year as skyrocketing inflation amid the Russia and Ukraine war dented the margins significantly and consequently weighed on the profits.
The worst performer in the list was Gland Pharma. This pharmaceutical major saw a drop in both revenue and profits in each of the last 4 quarters, and the stock has given negative returns of around 69% in the last 1 year.
Despite weak earnings and major correction, the stock trades at nearly 20 times its 12-month trailing earnings, which is above the industry average, according to Trendlyne.
Morepen Laboratories is the second in the pharmaceutical pack to see a consistent drop in profits in the last four quarters. The company has reported a fall of 33-82% year-on-year (YoY) fall in profits in the last four quarters. The stock has fallen over 37% in the last 1 year, and despite this correction, it is trading at around 34 times its 1-year trailing earnings, higher than the industry average.
Similarly, Metropolis Healthcare, Thyrocare Technologies, and Tatva Chintan Pharma, have disappointed investors consistently with weak numbers which reflects in their share performance in the last 1 year.
The 2 speciality chemical companies in the list are Punjab Chemicals and Crop Protection and Laxmi Organic Industries.
Laxmi Organic has seen its net profit fall by 37-66% YoY in the last four quarters, and the stock has given negative returns of more than 27% in 1 year.
Motilal Oswal Financial Services, which offers varied products and services, also found itself in the list of underperformers. The company’s profit fell by a sharp 45% in the March quarter and a fall bigger than this was in the June quarter at 86%. The stock has given negative returns of 23% in 1 year.
What should investors do?
After a mixed bag of earnings, most analysts have held a positive view on the domestic-oriented sectors as high frequency indicators remain encouraging.
However, experts remain cautious on export and commodity-related sectors as headwinds to growth in developed economies persist.
“Some of the sectors which are linked to global economic and demand scenarios have been impacted and may continue to see more pain in the coming quarters,” said Amit Nadekar, senior fund manager – equity, at LIC Mutual Fund.
Sonam Srivastava of Wright Research believes that FY24 will be an interesting year to know the emerging trends in earnings growth.
“The market seems set for a mixed FY24 with potential downgrades on the radar. There will still be sector-specific opportunities and the global growth scenario will be the primary driver,” Srivastava said.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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