Home >News >India >Festive sales likely to aid earnings recovery in Q3

India Inc. is expected to stay on the earnings growth path in the fiscal third quarter, buoyed by the festive season and a revival in economic activity from the sluggishness of the previous quarters when the country faced tighter pandemic-related curbs.

The profit bounce in most companies is also likely to be driven by aggressive cost cuts and the lag effect of lower input prices.

Tata Consultancy Services Ltd, the country’s top software services exporter, will kick off the December quarter earnings calendar when it declares results on Friday.

Kotak Institutional Equities expects net profits of the top 30 companies making up the BSE Sensex index to grow 2% from the year earlier and 12% sequentially in the three months ended 31 December. The brokerage expects companies in the Nifty 50 index to see a profit growth of 19% from the year earlier and 19% sequentially.

Kotak estimates earnings per share (EPS) of Sensex companies at 1,632 for FY21 and 2,046 for FY22.

EPS of Nifty companies is forecast at 494 for FY21 and 632 for FY22.

Sales of Nifty companies are likely to fall 2% though profit will grow 7% in the December quarter, according to Gautam Duggad, head of research, institutional equities, Motilal Oswal Financial Services. For Sensex companies, sales and profit are expected to decline 0.6% and 1.4% respectively.

“The quarter will be more or less similar to Q2 trends. Cyclicals such as cement and metals are expected to drive the quarter with 78% and 4.5 times year-on-year earnings growth in our respective coverage universe. Pharma will have one more robust quarter with 40% earnings growth. We expect IT and consumer to post steady performance. BFSI is expected to post flattish profits because of higher provisions," Duggad said.

Key factors to watch out for in the December quarter will be an overall pickup in the economy and potential return to pre-covid levels in various sectors, commentary by BFSI companies on restructuring and asset quality and trends in urban consumption, he said.

However, high commodity prices may start to eat into margins from the March quarter unless the pass-through of higher costs happens smoothly and if the recovery in demand is sustained, said Deepak Jasani, head of retail research, HDFC Securities.

There will be greater confidence about a lasting revival in the economy only if the pent-up demand continues to grow at the same pace in 4QFY21, he said.

Crude prices climbed 26.5% in the December quarter, while the prices of key metals such as aluminium, copper, zinc and nickel surged 14-16% on the London Metal Exchange in the same period.

“The base quarter for Q3FY21 numbers was weak in terms of sales/profit growth and to that extent, the numbers in Q3 may look better. In Q2FY21, the topline growth was mildly negative on a weak base, but profits grew sharply due to cost rationalization efforts," Jasani said.

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