March qtr earnings could spoil the party on Dalal St
Excluding banks, the net profit growth of Sensex companies is likely to be at 5.4%. Autos are likely to be the biggest drag, as our analyst has factored in a onetime impact of the BSIII vehicle ban
The quarterly earnings season that begins this week will determine whether Indian stocks that have rallied to record highs last week will be able to sustain the gains. Inflows from foreign and domestic investors have been driving up stocks but they may easily retreat if earnings disappoint. With rising commodity prices and the lingering effects of demonetisation, earnings prospects for most companies are anything but rosy, analysts say.
Companies, excluding banks and commodities suppliers, are likely to be weighed down by margin pressure as raw material costs have surged from a year earlier, they said.
Margins of members of the Nifty index are estimated to narrow by as much as 116 basis points in the three months ended March 31 because of rising input costs, Edelweiss Securities Ltd said in a note released on 7 April.
Infosys Ltd, Bajaj Capital Ltd and Reliance Power Ltd are scheduled to report their fourth quarter earnings on April 13.
Analysts expect quarterly earnings growth to be driven by banks and metals companies. Banks are likely to benefit because of low base from RBI’s asset quality review (AQR), while commodity prices are expected to support earnings growth of metals companies.
“Excluding banks and commodities, profits are likely to contract by 9%, similar to last quarter’s contraction and significantly lower than the 10% plus profit growth seen in 2014-15, 2015-16 and the first half of 2016-17. The slowdown in profit will be more pronounced in consumption sectors and cement,” Edelweiss said in the 7 April note.
The brokerage expects 2016-17 Nifty earnings per share (EPS) to grow 10%, a marked improvement over the past two years with Nifty EPS likely at ₹455, ₹555 and ₹660 at the end of 2016-17, 2017-18 and 2018-19, respectively. The brokerage expects Nifty companies to report revenue, operating profit and net profit growth of 15%, 8% and 14%, respectively, in the fourth quarter.
Analysts are worried that the lingering effects of demonetisation are still likely to impact companies that are dependent on domestic consumption.
Recovery of volume growth is likely to be one of the key concerns in the March quarter earnings, Sanjay Mookim, India equity strategist, Bank of America Merrill Lynch (BofA-ML), said recently.
Bank of America Merrill Lynch expects earnings growth to improve from sub-5% in 2016-17 to 12% in 2017-18 and 15% in 2018-19. Indian markets have touched record highs in March and April after BJP won the crucial Uttar Pradesh assembly elections. The Sensex and Nifty rose 11% and 12%, respectively, in Q4 2016-17 and if earnings fail to deliver, the rally may lose steam.
Net income of Sensex companies are likely to grow 9% on an annual basis and 15.3% sequentially, Kotak Institutional Equities said in a report dated April 7. Excluding banks, the brokerage expects an 8.8% year-on-year growth in net income.