Analysts gloomy ahead of earnings season kick-off

MUMBAI: Weak demand due to a sharp fall in rural consumption and contraction in government spending, which is dragging down investment levels, are expected to contribute to a sluggish fiscal fourth quarter earnings for Indian companies.

Market analysts see a 2-3 percentage point dip in the earnings per share of most companies, including the top 30 listed in the BSE’s benchmark Sensex.

Indian companies are scheduled to announce Jan-March results this month with India’s largest software exporter TCS first off the blocks on April 16.

“It is expected that the fourth quarter earnings for Indian companies will be disappointing, mainly due to the absence of positive factors such as demand and investment, and will be an extension of the slow third quarter growth,” said Dewang Shah, senior vice-president at Anand Rathi Financial Services.

There is deterioration in all demand levers, said Edelweiss Securities. Apart from the dent in rural consumption and wages, tightening in monetary conditions and scale back of government expenditure to meet fiscal targets are also hurting.

At the recent monetary policy review, RBI projected a 5.5% real gross domestic product growth for 2014-15. Policy paralysis during the previous UPA government forced companies to defer growth plans, while an overall slowdown in economic activity worldwide saw demand slide.

Measures by the new government are likely to show impact only next year.

“Government project tenders invited during Jan 2015 declined to just `21,000 crore, versus average levels of `30,300 crore per month since 2012,” said Sanjeev Zarbade of Kotak Securities. “Although the change in government has improved business sentiment, it has not translated into orders.”

According to the brokerages, the March quarter revenue growth will contract by an average of about 4 percentage points year-on-year. The sales figure of Sensex companies are expected to decline by about 7%. Private banks such as HDFC Bank, Axis Bank and ICICI Bank, and TCS and Maruti Suzuki are the only ones expected to post doubledigit sales growth.