March qtr earnings could spoil the party on Dalal Street
The quarterly earnings season that begins this week will determine whether Indian stocks that have rallied to record highs last week will be able to sustain the gains.
Inflows from foreign and domestic investors have been driving up stocks but they may easily retreat if earnings disappoint.
With rising commodity prices and the lingering effects of demonetisation, earnings prospects for most companies are anything but rosy, analysts say.
Companies, excluding banks and commodities suppliers, are likely to be weighed down by margin pressure as raw material costs have surged from a year earlier, they said.
Margins of members of the Nifty index are estimated to narrow by as much as 116 basis points in the three months ended 31 March because of rising input costs, Edelweiss Securities Ltd said in a note released on 7 April. A basis point is one-hundredth of a percentage point.
Infosys Ltd, Bajaj Capital Ltd and Reliance Power Ltd are scheduled to report their fourth quarter earnings on April 13.
“Excluding banks and commodities, profits are likely to contract by 9%, similar to last quarter’s contraction and significantly lower than the 10% plus profit growth seen in 2014-15, 2015-16 and the first half of 2016-17. The slowdown in profit will be more pronounced in consumption sectors and cement,” Edelweiss Securities Ltd said in a note released on April 7.
The brokerage expects Nifty companies to report revenue, operating profit and net profit
THE BSE SENSEX AND NSE NIFTY ROSE 11% AND 12%, RESPECTIVELY, DURING THE JANUARY MARCH QUARTER OF 201617
growth of 15%, 8% and 14%, respectively, in the fourth quarter.
Recovery of volume growth is likely to be one of the key concerns in the March quarter earnings, Sanjay Mookim, India equity strategist, Bank of America Merrill Lynch (BofA-ML), said on Thursday.
BofA-ML expects earnings growth to improve from sub-5% in 2016-17 to 12% in 2017-18 and 15% in 2018-19.
Indian markets have touched record highs in March and April after Prime Minister Narendra Modi’s Bharatiya Janata Party won the crucial Uttar Pradesh assembly elections. The Sensex and Nifty rose 11% and 12%, respectively in the March quarter and if earnings fail to deliver, the rally may lose steam.
The net income of Sensex companies is likely to grow 9% on an annual basis and 15.3% quarteron-quarter, Kotak Institutional Equities said in a report dated April 7.
Excluding banks, the brokerage expects an 8.8% year-on-year growth in net income.
Weak demand environment, rising raw material costs and increase in discounts may result in an annual decline in net income for automobile firms, while downstream energy firms may be hurt because of lower refining margins, muted growth in volume and the recent decline in global crude oil prices.