New Delhi/Mumbai: Over a third of Indian mid-cap firms are likely to post lacklustre results in April-June, with margins being squeezed due to pressure from rising input costs, steep interest rates and weakening demand.
A Reuters poll of brokerages showed that as many as 85 companies polled, 10 May show only single-digit growth, while 31 firms are likely to post a fall in profit.
Three companies, Jet Airways, Hindustan Petroleum Corp and Mahanagar Telephone Nigam Ltd are expected to post a loss for the period.
“The effect of higher raw material costs, reduced pricing power and weakening investment demand is clearly being felt in the financial results of corporate India,” Prabhudas Lilladher said in a research report titled ‘Not a pretty picture’.
The brokerage said while consumer goods, technology and oil & gas sectors may put up a “relatively better show,” banks, construction, real estate and power utilities would show weak performance.
“Real estate will continue to bleed, you will have cement again under pressure, infrastructure under pressure, autos could disappoint because the growth is getting muted and there are a lot of price cuts,” Ambareesh Baliga, chief operating officer, Way2Wealth Securities, told Reuters.
Margin pressure, particularly for banks, has been a huge concern recently, after India’s central bank raised interest rates 10 times since March last year in an effort to battle stubbornly high inflation, a move that has sucked up loan demand.
However, profits at banks will continue to be solid, after they adopted a strong stance to minimise non-performing loans, and strict regulatory norms ensured adequate provisioning.
“Banks are largely likely to be positive, except State Bank of India, wherein they will have to absorb the provisioning which they started last quarter. I think, State Bank exception, banks would ultimately continue to grow in the vicinity of 20%,” said Deven Coksey, managing director at K.R. Choksey.
High Costs, Rising Crude
Rising commodity, including a surge in global crude prices will hurt many Indian companies in April-June, although commodity prices may have bottomed out in the period.
However, on the flip-side, higher average oil prices would improve realisations and profitability of exploration and production (E&P) companies, ICICI Securities wrote in a preview note.
Cement firms are likely to post a mixed trend, with Madras Cements Ltd and Shree Cement Ltd slated to post lower net profits, while India Cements Ltd and Ultratech Cement would see profits doubling compared with a year ago.
Among the power firms polled, while Adani Power and CESC Ltd are slated to post gains, while Alstom Projects India Ltd, Areva T&D , KSK Energy and Torrent Power will see net profit falling.
“As the industry enters the lean period cement prices and demand are unlikely to recover over the short term. We expect cement stocks to languish at current levels over the short term,” an analyst at Elara Capital said.
The infrastructure sector also continues to face headwinds like lumpy order inflows leading to intense competition, rising crude prices, borrowing costs and most importantly environmental and forest clearance cancellations and delays, the analyst said.
Automobile companies, which have seen declining sales growth in recent times with rising interest rates and fuel prices forcing consumers to tighten purse strings, are also likely to see only muted profit growth, mirroring the broader market.
The decline in demand seen during the quarter across sectors, as customers postpone purchasing decisions, is expected to spill over to the next two quarters, said Alex Mathews, Head of Research at Geojit BNP Paribas Financial Services.
Even for sectors like consumers, industrials and information technology, which are expected to perform relatively better, margin and cost pressures will continue to affect investor sentiment, analysts said.
This is evident from Infosys Ltd, which warned on Tuesday it faces a volatile global economy that could slow client spending.
“Overall the expectation is of a damp quarter, now the question is whether it’s worse than that or in line with that,” Way2Wealth’s Baliga said