Export dependent sectors may disappoint investors

With India Inc’s second quarter earnings season set to kick in from the coming week, analysts are expecting a modest growth in earnings on the back of higher realisation in metal and mining and a strong growth in consumer sectors due to restocking post-GST implementation.

However, export linked sectors such as IT and pharma could throw some disappointments following the appreciation of the rupee against the US dollar over the last few months.

“We model 5.7 per cent year on year (YoY) growth in net profits of our coverage universe, led by strong growth in consumers (restocking post GST-implementation), energy (higher refining margins), industrials, and metals and mining (higher realisations and consequent improvement in profitability), despite drag from automobiles, pharmaceuticals and telecom,” said Sanjeev Prasad, co-head and MD at Kotak Institutional Equities.

According to rating agency Crisil, the aggregate top line of companies in key sectors — excluding banking financial services and insurance (BFSI) and oil — to grow by seven per cent in the second quarter of the current fiscal. These sectors account for over 70 per cent of the market capitalisation of NSE-listed companies.

“While, higher realisations led growth in steel, aluminium and crude oil linked sectors will push up the overall average, it however added that a rise in input costs and pricing pressure is expected to impact margins by 100-150 basis points. Higher commodity prices would see margins of sectors like automobiles, tyres and chemicals drop by 150-250 basis points.”

“EBIDTA margins could fall for 12 of the 21 key sectors. However, better revenue growth will ease pressures from the previous quarter when 16 key sectors had seen a dip in margins,” said Hetal Gandhi, director, Crisil Research.