Mumbai: The fourth quarter (Q4) earnings announcement season kicked off on Wednesday on a strong note and equities rebounded spectacularly from their intraday lows, though brokerages are expecting yet another rough quarter that will likely keep the stock markets on tenterhooks.
India’s largest power generation company NTPC Ltd said its net profit for the January-March quarter of fiscal 2009 was up 29.85% over its level a year ago. But just about nobody expects these results to be a harbinger for similar positive announcements by most other companies.
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Estimates put out by brokerages suggest that corporate earnings in Q4 will decline on a year-on-year basis, for the third straight quarter.
“There seems to be a lot of dispersion in earnings growth forecasts across sectors and stocks,” said investment bank Morgan Stanley in its earnings preview report. “Combined with the election uncertainty, this appears to be a recipe for volatility on the bourses.”
While a few analysts and economists believe that the worst is over for Indian companies, they are reluctant to call it a recovery. They prefer to wait for the first quarter of the fiscal 2010.
“Chances are that we will see a bottoming out in Q2 (of calendar year 2009) and that recovery should start in Q3 and Q4. Beyond that there are several uncertainties, both global and domestic,” Jahangir Aziz, chief economist at the Indian unit of JPMorgan Chase and Co. told Mint in an interview last week.
Hopes of a revival in economic activity is one reason why Indian equities have rallied in the past four weeks to their highest levels in 2009. “While the core story of lowering interest rates, improving financing conditions and bottoming out of demand slowdown is intact, we believe that at least in the near term the prices have run ahead of fundamentals,” said Apurva Shah of Prabhudas Lilladher Pvt. Ltd in a 6 April report.
The bellwether index of the Bombay Stock Exchange (BSE), the Sensex, closed at 10,742.34 on Wednesday, gaining 570 points from the day’s low, as investors rushed to buy stocks at cheaper levels. Since 9 March, the 30-stock benchmark index has rallied 31.64%, the best among emerging markets.
The Sensex had lost 52% in 2008 after returning at least 45% in 2006 and 2007.
Besides continuing economic uncertainty and weak earnings, politics could also weigh down equities. The general election for India’s Parliament will start next week and a new government will be in place by end-May.
Pessimistic forecasts
Most brokerages attribute the decline in corporate earnings to foreign currency losses and higher interest burden on the firms. “Companies will have suffered lots of foreign currency losses,” said Harindra Kumar, head of research at Centrum Broking Pvt. Ltd. “Interest burden, too, would have gone up as many had to take on debt at higher rates.”