GST disruptions, strong rupee seen hurting April-June qtr earnings

June quarter earnings growth of Indian companies is likely to slow because of uncertainty surrounding the implementation of goods and services tax (GST) and the impact of a stronger home currency on exporters.

The Indian rupee has strengthened 5.16% against the dollar since January and may hurt the exports realisation of Indian companies. The implementation of GST has also caused major disruption in many sectors.

As the July 1 implementation of GST approached, there were reports of liquidation of inventory by dealers and supply-chain disruptions in various sectors, developments that may hurt earnings and revenue growth of companies. GST, one of the biggest tax reforms since independence, subsumes more than a dozen state and central levies into one tax, economically unifying 29 states for the first time.

The slower earnings growth may dent the markets rally. The BSE’s benchmark Sensex and National Stock Exchange’s Nifty have gained 17.8% and 18.1%, respectively, year-to-date.

Deutsche Bank expects June quarter earnings to decline 6% from a year earlier for Nifty companies. “The 6% forecast decline in earnings may be exaggerated by the large annual inventory adjustments at oil marketing companies (OMCs) due to sharp decline in global oil prices. Excluding energy, Nifty earnings are expected to rise by 4% yearon-year (YoY),” Abhay Laijawala, head of research at Deutsche Bank, wrote in a July 5 report.

The report also said that the annual growth momentum