Numbers in focus: auto earnings, inflation data

 

1. CPI inflation

Data on consumer price index-based inflation for October will be released on Friday. The headline figure has moderated over the last four months, thanks to a high-base effect and a softening food inflation. The Reserve Bank of India has also slashed its inflation projections for 2021-22 to 5.7% from 5.3%.

However, the headline figure should not be taken for granted. Core inflation, which excludes prices of food and fuel, is still hovering around 6%. Fuel prices are constantly on the rise, and having a spillover effect on the prices of other household items. Moreover, the base effect is set to wither away by year-end, while elevated global commodity prices and supply disruptions continue to be key risks as noted by the monetary policy committee in its October meeting.

The upcoming inflation numbers will be a key metric for the committee to consider when it meets next in December, under rising pressure to hike interest rates.

 

2. Mutual Funds

Buoyed by continued economic recovery, a rapid pace of vaccinations and subsiding covid-19 cases, investors have been somewhat optimistic about equity mutual funds in the last few months. The inflows data for October will be released by the Association of Mutual Funds in India this week.

Net inflows into equity MF schemes had declined to ₹6,456.38 crore in September, but systematic investment plans (SIPs) touched a record high of ₹10,000 crore, showing the continued retail exuberance in equities. The inflows were also enough to help stock indices touch new highs.

The rising trend continued for a good part of last month, with investors seemingly upbeat about the growth outlook and a revival in demand during the festival season. However, markets also turned jittery over high valuations, which may have caused some outflows. The possibility of interest rate hikes by the US Fed and the Reserve Bank of India in the coming months may also have kept investors nervous.

 

3. Auto earnings

Two automobile companies will announce their earnings for the quarter ended September this week: Mahindra & Mahindra on Tuesday, and Hero MotoCorp on Friday. The auto sector is expected to report muted growth due to a host of factors, including global supply chain issues that have led to a shortage of raw materials, higher commodity prices, and an adverse base effect.

Mahindra & Mahindra is expected to still clock single-digit year-on-year growth in sales as the company saw decent demand during the quarter driven by the automotive segment and new product launches. A decline in tractor volumes may weigh on its earnings.

Hero MotoCorp is likely to perform poorly, with analysts seeing a decline in its sales due to low demand for two-wheelers in the past few months.

However, both companies are optimistic on the growth outlook hereon and expect the festival season to revive demand and sales volumes in the coming months.

 

4. OIL & ONGC results

Two major state-owned upstream oil and gas companies—Oil India Ltd (OIL) and Oil and Natural Gas Corp (ONGC)—are set to announce their September-quarter earnings on Wednesday and Friday, respectively.

Analysts expect the two companies to report strong earnings growth riding on a significant increase in Brent crude oil prices to multi-year highs in recent months. Substitution demand is expected to have been high due to the shortage of coal and natural gas needed for power generation in India and elsewhere.

This optimistic outlook reflects in the stock performance. The two oil majors outperformed the benchmark Sensex by far, and even their sectoral peers during the three months till September.

Following the losses during the 2020 lockdown, a post-pandemic oil demand rebound in major consuming nations has led to higher oil prices. With price levels likely to stay high, Oil India and ONGC are likely to continue benefiting. Volume growth, however, is expected to be muted in the September quarter, analysts said.

 

5. Hindalco results

Hindalco Industries Limited, the world’s largest aluminium company by revenues and a major player in copper, will announce its September-quarter results on Friday. The company has bounced back strongly and reversed the contraction it had seen in the run-up to and during the first lockdown period in 2020. It recorded a stellar growth of 64%, on a year-on-year basis, in its revenues in the June quarter.

The non-ferrous metal company is expected to repeat its performance in July-September as well, analysts said. The sector in general has benefited from surging global metal prices and increased competitiveness of domestic companies that procure more than 80% of their coal from Coal India at a fixed price. The coal shortage has been an issue for metal companies for over a month now, but it has not hurt production of aluminium so far. Rising alumina and aluminium prices are likely to brighten the profit realisations for Hindalco.