However, in case the disruption caused by demonetization only lasts a month, the Nifty earnings could grow at 9%.
As demonetization of high-value notes expected to disrupt business activity, earnings from Nifty are likely to take a hit and estimated to grow in the range of 0-9% this fiscal, depending on the pace of economic recovery, UBS Securities India today said.
"We have been expecting earnings cuts and demonetization is a further drag near-term. It makes 2017-18/2018-19 outlook more uncertain," the financial services major said in a note.
According to UBS, in the case where disruption from demonetization only lasts a month causing insignificant impact on economy, the Nifty earnings could grow at 9%.
In a 'slower recovery' scenario which implies 6 months of disruption and the GDP likely at 6% for 2017-18 could result in earnings growth at 5%.
Besides, UBS has estimated that Nifty earnings growth can be zero% if there is a significantly lower level of activity within the informal economy (business failures, layoffs) with associated impact even on the formal economy.
In this scenario, real GDP growth may be very weak at 3.2% for the current fiscal but may recover to 8.5% in 2017-18, the report said.
The global investment bank had earlier estimated Nifty earnings to grow at 10% in the current fiscal.
According to UBS, while the demonetization would disrupt economic activity in the near term, it would also formalise the economy.
However, the report said uncertainty prevailed in terms of -- whether the impact prolongs beyond 3-6 months; on the nature scale and timing of policy response if any as well as impact from GST implementation and other follow-up anti-graft measures.
"Our investor discussions suggest that they expect the impact to be short-lived and many view it as a big long-term positive," it added.
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