Down­grade risks mount for In­dia Inc earn­ings out­look

Financial Chronicle - - MONEY GAME - NUPUR ACHARYA

The ru­pee’s long­est rout since 2000 and oil’s surge to a fouryear high have put earn­ings es­ti­mates of In­dian com­pa­nies at the risk of down­grades.

An­a­lysts have boosted the av­er­age profit fore­cast for NSE Nifty 50 In­dex com­pa­nies by 9.2 per cent this year, shrug­ging off a 12 per­cent slump in the gauge since Au­gust. But his­tory sug­gests the di­ver­gence won’t ex­tend for long, and the grow­ing stress in Asia’s third-largest econ­omy may soon trans­late into lower pro­jec­tions. Not that a weaker ru­pee is bad for all In­dian com­pa­nies—ex­porters in­clud­ing soft­ware pro­duc­ers and drug­mak­ers will gain in lo­cal-cur­rency terms. Still, the net im­pact on the broader cor­po­rate sec­tor may be neg­a­tive be­cause of higher im­port bills. Add to that the tighter lo­cal-fund­ing con­di­tions, and profit es­ti­mates be­gin to ap­pear op­ti­mistic.

“Key fac­tors are ris­ing in­put costs, vo­latile crude prices, ru­pee de­pre­ci­a­tion and tight­en­ing liq­uid­ity, all cat­a­lysts for mar­ket de-rat­ing,” an­a­lysts led by Dhiren­dra Ti­wari at Mum­bai-based An­tique Stock Broking wrote in a note. The bro­ker­age ex­pects earn­ings growth for Nifty com­pa­nies to be 2.8 per­cent on year in the fis­cal sec­ond quar­ter, much slower than the 13 per cent ex­pan­sion seen in the April -June pe­riod.

De­mand in the world’s fastest-grow­ing ma­jor econ­omy is cool­ing af­ter back-to-back rate in­creases by the cen­tral bank, prompt­ing pol­icy mak­ers to pause the hik­ing cy­cle in Oc­to­ber de­spite the cur­rency’s free fall. A de­fault by a sys­tem­i­cally im­por­tant non-bank­ing fi­nance com­pany ag­gra­vated the sell­off in stocks, which were al­ready reel­ing un­der a tum­bling ru­pee and el­e­vated prices of crude oil—the na­tion’s top im­port.

“Ru­pee de­pre­ci­a­tion and higher crude prices will fur­ther widen the cur­rent-ac­count deficit and pose a risk of higher in­fla­tion,” Pankaj Pandey, the head of re­search at ICICI Se­cu­ri­ties, wrote in a note this week. “There could be a down­ward re­vi­sion in earn­ings across sec­tors post the ad­verse move­ment in macro pa­ram­e­ters.”

Here’s what bro­ker­ages and in­vestors ex­pect from the Septem­ber-quar­ter re­sults sea­son that kicks off Thurs­day with Asia’s top soft­ware ex­porter Tata Con­sul­tancy Ser­vices. Reliance Se­cu­ri­ties

Ex­pects bank­ing, fi­nan­cial ser­vices and in­sur­ance com­pa­nies to see pres­sure on op­er­at­ing per­for­mance; prefers HDFC Bank, In­dusInd Bank and DCB Bank

Earn­ings growth for con­struc­tion firms and power util­i­ties may re­main flat­tish; cap­i­tal goods ex­pected to post rev­enue growth of 13 per cent and earn­ings gain of 23 per cent yearon-year. Key re­sults picks: HG In­fra, KEC In­ter­na­tional, Kal­pataru Power, En­gi­neers In­dia and NTPC

Deutsche Bank

Pre­dicts weak ru­pee may be fa­vor­able to tech­nol­ogy com­pa­nies. Tata Con­sul­tancy and HCL Tech may lead with year-on-year earn­ings growth of 24 per cent and 19 per cent, re­spec­tively.

Sec­tors likely to re­port weaker earn­ings growth are tele­com, con­sumer dis­cre­tionary and in­dus­tri­als Cit­i­group Says ris­ing in­put prices and weaker ru­pee among fac­tors af­fect­ing prof­its for con­sumer sec­tors; fi­nan­cials to ben­e­fit from lower base while earn­ings for au­tos, health-care, in­dus­tri­als and tele­com may be weak

Ex­pects pos­i­tive sur­prise from Aurobindo Pharma, In­dusInd Bank, Am­buja Ce­ment and HCL Tech­nol­ogy; neg­a­tive sur­prise likely from Lupin, Shri­ram Trans­port, Mahin­dra & Mahin­dra Fi­nance, Emami and Cromp­ton Moti­lal Oswal

Re­cent macro events pose sig­nif­i­cant risk to Nifty’s sec­ond-half fis­cal 2019 es­ti­mates; with 2Q prof­its ex­pected to climb 12 per cent on a base of 15 per cent growth.

Ru­ral con­sump­tion re­cov­ery to con­tinue, with con­sumer sta­ples likely to post fifth straight quar­ter of dou­ble-digit profit growth. Non-bank fi­nance firms, too, should re­port strong growth as most head­winds emerged only to­ward the quar­ter end.

Top ideas in­clude HDFC, ICICI Bank, Axis Bank, Maruti Suzuki, Hin­dalco, Ashok Ley­land, Tech Mahin­dra.

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