Rising consumption, low base may lift June quarter earnings
: Listed companies, barring telcos and select banks, are expected to post decent earnings growth in the June quarter, helped by rising consumption and the low base of last year, various broking companies said. The falling rupee has helped exporters as well.
Edelweiss Securities expects the 50-share Nifty index to post a 22% year-on-year (y-o-y) profit growth in the June quarter. Motilal Oswal Securities Ltd expects Nifty and companies in its coverage universe to post a net profit growth of 26%.
According to JM Financial Institutional Securities Ltd, earnings per share (EPS) of Nifty, excluding Adani Ports and Special Economic Zones Ltd, is likely to grow by 18.5% y-o-y aided by strong growth in consumer discretionary and materials, while telecom is expected to remain a laggard. Some were less optimistic. Kotak Institutional Equities said it expects June quarter profit of the 30-share Sensex to grow 6% and that of Nifty-50 by 12%.
However, analysts seemed to agree on what was likely to be good, bad and ugly in the report cards.
“We break it down to three categories, namely Realists, Hopefuls, Dreamers,” Edelweiss Securities said in a 5 July note.
“We expect: Realists—IT, FMCG (fast-moving consumer goods), retail lending banks and domestic auto—to post healthy double-digit earnings growth; Hopefuls—metals, NBFC (nonbanking finance companies), pharma and consumer discretionary—to deliver strong earnings growth largely due to a low base. Dreamers—corporate lending banks, cement and telecom—to suffer EPS contraction, and, hence, they are prone to FY19E EPS downgrades,” Edelweiss said.
Others largely shared the view.
“All in all, in one word, I would say results are going to be good,” said Gautam Duggad, head of research, institutional equities, Motilal Oswal Securities. “IT is coming back. The consumption space is doing well. Metals and oil and gas have been doing well.”
“However, all this is driven by low base—specially for consumption-linked sectors,” Duggad told Mint.
According to Capitaline data, net profit of Nifty companies declined 9.74% in the June 2017 quarter.
Dipen Sheth, head of institutional research at HDFC Securities, expects Sensex and Nifty to post net profit growth in the “mid-teens” for the June quarter, “unless something goes terribly wrong”.
“The results should be decent. We need to remember that the same quarter a year ago was not promising. So, base effect comes into play,” Sheth said in an interview. “That said, macros are good and consumption-linked stories should perform well, as demand has improved. The bad ones will be ICICI Bank and Axis Bank in the private banks space. Retail lenders should do well. PSU banks may still bleed, though. That’s a difficult area,” added Sheth.
In a note on 5 July, Kotak Institutional Equities said it expects banks under its coverage to report another quarter of steep losses, led by increase in loan-loss provisions, lower contribution from treasury income and higher mark-to-market provisions.
However, Kotak Institutional Equities expects retail-oriented banks such as HDFC Bank Ltd, IndusInd Bank Ltd and City Union Bank Ltd to report stable performance.
“Indian IT is expected to report a mixed quarter, as crosscurrency movements weigh on USD growth but INR remains supportive,” IDFC Securities said in a 1 July note.