Mumbai: Sterlite Industries (India) Ltd and Maruti Suzuki India Ltd are poised to lead companies in reporting the weakest sales growth in about four years as a slowing economy cools demand for goods from cars to appliances.
Revenue for 30 companies on the BSE Sensex may expand 3.8% from a year earlier in the quarter ended June, the least in 16 quarters, according to Deutsche Bank AG. Bank of America Corp. forecasts sales growth of 3.9%.
Sales at Maruti, India’s biggest auto maker, fell in four of the six months through June and steel demand in the world’s third largest user of the alloy rose in the April-June period at the slowest pace in at least five years, official data show. A slide in the rupee to a record will curb the central bank’s ability to pare interest rates to revive an economy that grew less than 5% for a second straight quarter.
“When you’ve got an economy which is growing at 5% to 6% it is very difficult for companies to deliver strong earnings growth,” Vetri Subramaniam, who oversees $2.3 billion in assets as chief investment officer at Religare Invesco Asset Management Co. in Mumbai, said in a phone interview on Thursday. “Revenue growth in aggregate is showing signs of deceleration continuously and that remains a cause of concern.”
Morgan Stanley estimates sales for the 111 companies under its coverage, excluding state-run fuel retailers, likely grew at 3% in the June quarter, a record low, analysts led by Ridham Desai wrote in a report dated 4 July. CLSA Asia-Pacific Markets forecasts sales growth of the 106 companies it tracks to slow to 5% from 19% in the year-ago period, the brokerage said in a report the same day.
Billionaire Anil Agarwal-controlled Sterlite, India’s biggest copper and zinc producer, may say sales slumped 35% to Rs.6,880 crore, according to the median estimate of 18 analysts in a Bloomberg survey. Revenue at Maruti Suzuki may drop 2.3% to Rs.10,290 crore in the June quarter, according to the median estimate of 29 analysts in a Bloomberg News survey.
Group sales at Tata Steel Ltd may drop 3% to Rs.32,570 crore and Bharat Heavy Electricals Ltd, the country’s biggest power-equipment maker, may report revenue declined 4.2% to Rs.7,980 crore, according to the survey.
Shares of Sterlite, Bharat Heavy and Tata Steel are among the worst performers on the Sensex this year.
Infosys Ltd had the sharpest gain in six months after first-quarter profit climbed and the software exporter’s sales forecast in dollar terms beat analyst estimates. Infosys is the first Sensex company to announce earnings. The gauge rose 0.9% to 19,854.48, bound for the highest close since 30 May.
Asia’s third-largest economy grew 5% in the year ended 31 March, the least in a decade. Industrial output likely expanded 1.5% in May, the slowest pace in three months, a Bloomberg survey of economists showed before data due o Friday. Capital-goods production, a measure of company expenditure on machinery, has shrunk in eight out of 12 months through April, according to the latest available data.
“Lack of capital expenditure is the biggest area of concern, because for the economy to pick up you need a pick-up in investment,” Jyoti Vaswani, chief investment officer at Aviva Life Insurance Co., said in an interview. The initiatives the government has been taking off late—the reforms in power and energy sectors and clearing roadblocks for environment clearances for projects—should lead to investments going forward.
Prime Minister Manmohan Singh and finance minister P. Chidambaram have changed policies since September to spur growth and avert a downgrade of the nation’s credit rating. Chidambaram is in the US this week, extending efforts to woo investment and help fund India’s record current-account deficit. The nation is rated at the lowest investment grade by Fitch Ratings, Standard & Poor’s and Moody’s Investors Service.
While global funds pulled $1.8 billion from local stocks in June, the most since August 2011, this year’s net inflows of $13.5 billion is the highest in Asia after Japan, data compiled by Bloomberg show. Foreigners have been net sellers of Indian equities in just two of the past 13 years, according to data going back to 2000.
“While India’s fundamentals are far from perfect and the policy remains challenging, these are known factors,” Clive McDonnell, head of emerging-market equity strategist for Standard Chartered Plc., said in an interview to Bloomberg TV India on Thursday. “The government is trying to push the envelope on reforms. We are overweight on India within the emerging markets universe.”
India’s budget and trade shortfalls have hurt the nation’s currency, which slid to a record 61.2125 per dollar on 8 July. The rupee has depreciated 7.9% in 2013, emerging Asia’s worst performance, making imports costlier and threatening to spur gains in consumer prices, which have stayed close to 10% for more than a year. Reserve Bank of India governor D. Subbarao left interest rates unchanged in June for the first time in four reviews, citing inflation risks.
“We don’t see the RBI rushing in to cut rates given the other issues it has to grapple with, like the pressure on the rupee and the current-account deficit,” Religare’s Subramaniam said. We are not expecting a cut in the policy review on 30 July, he said.
“Combined profits for the 30 companies in the Sensex may increase 5.8% in the three months ended June after two quarters of near-zero growth,” Bank of America analysts Jyotivardhan Jaipuria and Anand Kumar wrote in a 3 July report. Still, there’s a risk of disappointment in earnings because of a weak currency, they wrote. Morgan Stanley estimates net income to shrink 1% in the period. BLOOMBERG