Nifty 50 Cos’ Earn­ings Likely to Re­bound in March Quar­ter

Sta­ble com­mod­ity prices, lower base ef­fect in cer­tain sec­tors to aid earn­ings

The Economic Times - - Front Page -

ET In­tel­li­gence Group

Mum­bai: Sales of Nifty 50 com­pa­nies will show im­prove­ment in the March 2016 quar­ter for the first time in five quar­ters while net profit will grow in dou­ble digit af­ter a gap of six quar­ters, ac­cord­ing to the ET In­tel­li­gence Group’s quar­terly es­ti­mates.

The 50 large and fre­quently traded com­pa­nies are ex­pected to grow ag­gre­gate rev­enue by 2.7% and net profit by 10.4% year-on-year for the March 2016 quar­ter. In the March quar­ter of the last fis­cal, rev­enue had fallen by 4.6% and net profit had skid­ded by 16%. This poor per­for­mance will serve as a low base while cal­cu­lat­ing year-on-year growth for March 2016 quar­ter. “The March quar­ter is ex­pected to start show­ing a grad­ual im­prove­ment in earn­ings,” said Vaib­hav Agrawal, VP & Head of Re­search, An­gel Broking.

Profit growth to be in dou­ble dig­its af­ter a gap of six quar­ters

Pre­vi­ous year’s low base & be­nign in­put prices to drive growth

Select Auto, IT, pharma, FMCG com­pa­nies to per­form well

“The year-on-year earn­ings growth is ex­pected to be bet­ter com­pared to the last four quar­ters on the back of sta­bil­i­sa­tion in com­mod­ity prices, lower base ef­fect in cer­tain sec­tors and grad­ual pickup in the con­sump­tion cy­cle,” said Agrawal.

In ad­di­tion, net profit may get a boost from ex­pected sharp im­prove­ment in select com­pa­nies in au­to­mo­biles sec­tor in­clud­ing Eicher Mo­tors, Hero Mo­tocorp and Tata Mo­tors, soft­ware ex­porters such as TCS and Tech Mahin­dra, power com­pany Tata Power, and pharma ma­jors Lupin and Sun Pharmaceuticals In­dus­tries. The op­er­at­ing mar­gin of the sam­ple is ex­pected to stay above 20% for the fourth con­sec­u­tive quar­ter fol­low­ing be­nign in­put costs. “While com­mod­ity fo­cused sec­tors (es­pe­cially met­als and oil & gas) would con­tinue to bear the brunt of muted re­al­i­sa­tions, lower com­mod­ity prices would largely have a pos­i­tive ef­fect on the op­er­at­ing mar­gins of Cor­po­rate In­dia,” said Pankaj Pandey, re­search head, ICICI Di­rect.

Though the de­clin­ing phase of earn­ings seems to have reached a bot­tom, signs of a fast re­cov­ery are not yet vis­i­ble. Core sec­tors such as cap­i­tal goods, met­als, and power con­tinue to suf­fer from low de­mand.

There­fore, growth is ex­pected to be more grad­ual from here on than what was ex­pected by in­dus­try track­ers a year ago. The mon­soon pat­tern will also play an im­por­tant role in de­cid­ing whether ru­ral de­mand will pick up this fis­cal af­ter two con­sec­u­tive drought years.

“The trend (in cor­po­rate earn­ings) is likely to see mod­est im­prove­ment as we move into the June and Septem­ber quar­ters of FY17. This could get bet­ter with time if we get nor­mal rain­fall,” said Sonam Udasi, fund man­ager, TATA Asset Man­age­ment.

The earn­ings growth of the two-wheeler com­pa­nies is likely to be bet­ter than four­wheel­ers in the March quar­ter due to mar­gin ex­pan­sion and higher vol­ume growth. Hero Mo­toCorp, In­dia’s largest two-wheeler maker, is likely to post high dou­ble-digit growth on ac­count of 9% in­crease in sales vol­umes. On the other hand, In­dia’ largest car maker Maruti Suzuki is likely to re­port muted growth de­spite in­cre­men­tal vol­umes from new launches due to el­e­vated dis­count per ve­hi­cle.

Banks are likely to show fur­ther stress due to ris­ing pro­vi­sion­ing re­quire­ments. Pub­lic sec­tor banks in the Nifty 50 in­clud­ing Bank of Bar­oda and State Bank of In­dia are likely to show a sharp fall in net profit.

Ce­ment com­pa­nies will ben­e­fit from bet­ter re­al­i­sa­tion due to in­crease in prices. This and lower raw ma­te­rial cost are ex­pected to boost op­er­at­ing profit per tonne of these com­pa­nies by over 30% year-on-year.

The over­hang of de­lay in ex­e­cu­tion cy­cle and in­creas­ing com­pet­i­tive in­ten­sity con­tinue to mar the earn­ings of the cap­i­tal goods com­pa­nies. There has been some pickup in or­der in­flow in the power equip­ment seg­ment. Among the heavy­weights, Larsen & Toubro (L&T) may re­port a de­cel­er­a­tion in rev­enue growth whereas BHEL’s rev­enue may drop from the year ago level.

Sec­tors in­clud­ing met­als and min­ing and oil and gas are likely to re­port sub­dued num­bers con­sid­er­ing year-on-year fall in com­mod­ity prices.

“We ex­pect health­care and au­to­mo­bile play­ers to do well. Con­sumer goods com­pa­nies are also ex­pected to show re­silience. Met­als, oil and gas, and power com­pa­nies how­ever may con­tinue to be un­der pres­sure,” said Udasi of Tata Asset Man­age­ment.


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