Mumbai: Listed companies, barring telecom firms and select banks, are expected to post decent earnings growth in the June quarter (Q1), helped by rising consumption and the low base of last year, various broking companies said. The falling rupee has helped exporters as well.
Edelweiss Securities expects the 50-share Nifty index to post a 22% year-on-year (y-o-y) profit growth in Q1. Motilal Oswal Securities Ltd expects Nifty and companies in its coverage universe to post a net profit growth of 26%.
Click here to see Q1 Results 2018 calendar for listed companies
According to JM Financial Institutional Securities Ltd, earnings per share (EPS) of Nifty, excluding Adani Ports and Special Economic Zones Ltd, is likely to grow by 18.5% y-o-y aided by strong growth in consumer discretionary and materials, while telecom is expected to remain a laggard.
Some were less optimistic. Kotak Institutional Equities said it expects June quarter profit of the 30-share Sensex to grow 6% and that of Nifty-50 by 12%.
However, analysts seemed to agree on what was likely to be good, bad and ugly in the report cards.
“We break it down to three categories, namely Realists, Hopefuls, Dreamers," Edelweiss Securities said in a 5 July note.
“We expect: Realists—IT, FMCG (fast-moving consumer goods), retail lending banks and domestic auto—to post healthy double-digit earnings growth; Hopefuls—metals, NBFC (non-banking finance companies), pharma and consumer discretionary—to deliver strong earnings growth largely due to a low base. Dreamers—corporate lending banks, cement and telecom—to suffer EPS contraction, and, hence, they are prone to FY19E EPS downgrades," Edelweiss said.
Others largely shared the view.
“All in all, in one word, I would say results are going to be good," said Gautam Duggad, head of research, institutional equities, Motilal Oswal Securities. “IT is coming back. The consumption space is doing well. Metals and oil and gas have been doing well."
“However, all this is driven by low base—specially for consumption-linked sectors," Duggad told Mint.
According to Capitaline data, net profit of Nifty companies declined 9.74% in the June 2017 quarter.
Dipen Sheth, head of institutional research at HDFC Securities, expects Sensex and Nifty to post net profit growth in the “mid-teens" for the June quarter, “unless something goes terribly wrong".
“The results should be decent. We need to remember that the same quarter a year ago was not promising. So, base effect comes into play," Sheth said in an interview. “That said, macros are good and consumption-linked stories should perform well, as demand has improved. The bad ones will be ICICI Bank and Axis Bank in the private banks space. Retail lenders should do well. PSU banks may still bleed, though. That’s a difficult area," added Sheth.
In a note on 5 July, Kotak Institutional Equities said it expects banks under its coverage to report another quarter of steep losses, led by increase in loan-loss provisions, lower contribution from treasury income and higher mark-to-market provisions.
However, Kotak Institutional Equities expects retail-oriented banks such as HDFC Bank Ltd, IndusInd Bank Ltd and City Union Bank Ltd to report stable performance.
“Indian IT is expected to report a mixed quarter, as cross-currency movements weigh on USD growth but INR remains supportive," IDFC Securities said in a 1 July note.
According to IDFC Securities, while the rupee is a substantial tailwind for the sector, the dollar has appreciated against GBP/EUR and this will be 80-120 basis points (bps) quarter-on-quarter (q-o-q) headwind to reported US dollar growth.
“Given this is a quarter of wage hikes and visa costs, we expect margins to decline q-o-q. That said, 4% depreciation of the INR will limit the decline to 100-150bps q-o-q," IDFC analysts added.
Most of the consumer goods companies are likely to see double-digit volume growth aided by recovery in the rural segment and a soft base, Edelweiss Securities said. The Edelweiss consumer goods pack’s revenue and net profit growth is likely to be 12.2% and 16% y-o-y, respectively.
“Rural cluster should continue to revive and grow a tad higher than urban. Wholesale and trade pipeline are out of the woods, which is another comforting factor," Edelweiss analysts said, adding that they expect Hindustan Unilever Ltd, Dabur India Ltd, Britannia Industries Ltd, Marico Ltd, Asian Paints Ltd, Berger Paints India Ltd, Pidilite Industries Ltd, Emami Ltd and Nestle India Ltd to report double-digit volume growth on a very soft base.
The pharma sector may see some relief after a long hiatus, say analysts. Edelweiss Securities expects the pharma sector to deliver good numbers in Q1 FY19, led by strong domestic growth on a base disrupted by the goods and services tax and on currency tailwinds. It expects overall revenue for the pharma sector to grow 17% from a year before and net profit by around 50% on a y-o-y basis.
In the telecom sector, Kotak Institutional Equities expects weak earnings prints for the Indian wireless companies, minor revenue gains from challenger exits notwithstanding.