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The new earnings season that will begin this week is unlikely to bring good news. The biggest drag could come from banks. The lenders are under pressure from the Reserve Bank of India to take a hit for the growing pile of bad loans. Commodity producers too will continue to struggle.
It will be interesting to see how other companies perform. The sustained deflation in wholesale prices means that sales growth will seem muted. Investors would do well to look beyond corporate
top lines. There is every possibility that volume growth will be better than value growth in several important companies. Attention also needs to be paid to the trend in profit margins at a time when input costs are falling faster than output costs for many companies.
Indian companies still have a long battle ahead of them. But better profit margins as well as an improvement in free cash flows could be useful signs of a recovery in corporate finances. These numbers need to be watched closely.
The management commentary in several key sectors—potentially giving an improved assessment of the possibility of full-fledged earnings revival—will also be important.