December quarter earnings likely to be disappointing

MUMBAI: The December quarter may turn out to be yet another forgettable one for Indian investors as a commodity downturn, liquidity crunch and declining government spending combine to depress earnings growth.

According to analysts, growth in the October-December quarter is likely to be tepid overall, though a weaker rupee and softer commodity prices could help some sectors. Oil and gas companies are expected to suffer inventory losses, while banks gain from lower provisions.

“We are expecting a relatively tepid quarter in Q3, exacerbated by oil marketing companies’ (OMCs) inventory losses and weakness in auto sales data,” said Gautam Duggad, head of research, institutional equities, Motilal Oswal Securities Ltd. “We are building in 13% sales and 8% profit growth for Nifty. For Sensex, we are building in 14% and 23% sales and profit growth. Difference in Nifty and Sensex profit growth is owing to OMCs’ presence in Nifty.”

Global cyclicals such as metals and oil and gas—the drivers of earnings growth over the last few quarters—are looking jaded, given the correction in commodity prices, the brokerage has said. In the three months ended 31 December, crude prices fell 35%.

Concern over the recent decline in commodity prices— which rose 12.86% from January till October but fell 18.47% overall in 2018—found reflection elsewhere too.

Kotak Institutional Equities expects profit of Sensex companies to rise 16% during the quarter while that of Nifty companies to decline 3%, with the difference largely due to the presence of downstream oil companies in the Nifty index but not in the BSE index.

However, falling crude prices are seen to benefit sectors such as aviation and paint, which gain from cheaper raw material. “With regards to crude, while some benefits may be accrued this quarter and higher impact of it will be felt in the fourth quarter. Airlines and some of the consumer discretionary companies such as paints should be big gainers,” said Gautam Shroff, head of sales for institutional trading at Edelweiss Securities Ltd.