Mumbai: Profit recovery in India will be led by auto, consumer goods and metal firms this year while credit growth at larger banks is likely to be slow as concerns of rising inflation and monetary tightening loom, analysts said.
Advance tax paid by India’s top auto, metals and consumer goods firms jumped in the first quarter of FY11, suggesting robust profits as demand rebounds, while collections from top lenders State Bank of India and ICICI were sluggish.
India’s top 100 companies paid Rs12,660 crore as advance tax for the quarter, up nearly a fifth from last year. The positive outlook for companies is also reflected across Asia. A Reuters corporate sentiment survey found that Asian companies were at their most optimistic in five quarters on robust economic growth in the region.
Corporate earnings in FY11 are likely to rise by 26.5% led by banking, petrochemicals, metals, IT and auto, UBS said in a note to clients on Wednesday, adding earnings from cement, conglomerates and telecom are likely to fall in FY11.
“We do believe profit numbers would be good, sector-specific from autos, metals. Advance tax numbers also suggest that smaller banks will do better than bigger ones,” said Kunal Dalal, head of research at brokerage KR Choksey.
Gopal Agrawal, head of equities at Mirae Asset Global Investment Management, is overweight on consumer goods, pharma, auto and auto ancillaries. He is also bullish on any gas-related opportunities in India.
“India’s per capita consumption is increasing. We see for the next five years consumption will rise by leaps and bounds. In auto, the trend story continues, demand is very strong. Low cost of production and exports will benefit ancillaries,” he added.
Advance taxes paid by Tata Motors, Mahindra & Mahindra and Bajaj Auto zoomed several times, pointing towards a sharp recovery, analysts said.
Advance tax numbers are indicative of profits at companies which are required to pay their full-year taxes in instalments over four quarters.
In the first quarter, companies are required to pay 15% of their expected taxes -- a smaller chunk compared to the rest of the three-month periods.
“(Increase in) advance tax is essentially due to sharp pick-up in the economy and particularly industry,” said D.K. Joshi, principal economist at rating agency Crisil.
Not So High
However, banking remains an area of concern. Advance taxes paid by banks indicate a mixed bag - foreign banks and India’s top lender SBI paid far less tax than a year ago, while some others like Bank of Baroda and Bank of India paid much higher advance tax.
SBI, whose advance tax for the quarter fell 19%, however remained the country’s second biggest corporate taxpayer, after state-run Oil and Natural Gas Corp.
Mirae Asset’s Agrawal was neutral on banks due to high valuations, while Geojit’s Mathews said provisioning would be an issue for public-sector banks.
Analysts were also underweight on real estate and cement on fears of inflation and high input costs.
“In realty, I see signs of inflation still looming, it’s also an interest-rate sensitive sector,” siad Alex Mathews, head of research at Geojit BNP Paribas Financial Services.
India’s headline inflation unexpectedly accelerated to 10.16% in May, heightening expectations India’s central bank would raise rates before its scheduled July review.
The data came on the heels of April manufacturing output, which grew at its fastest pace in 15 years, indicating strong growth and rising inflationary pressures.
“There are risks. Uncertainties are there but recovery is strong,” said Crisil’s Joshi.