Analysts are hopeful of recovery in the earnings on account of rupee depreciation, which is seen boosting the revenue growth of Sensex companies, improvement in operating margin and a likely double-digit net profit growth (y-o-y).
Although a tough domestic macro-environment will continue to weigh on the profitability of the corporate India, the export-driven sectors are seen providing some respite to the financial performance of companies in the quarter ended December 2013.
Besides a year-on-year fall of 14.5% in the average value of the rupee against the dollar, the pick up in global growth is also seen supporting the earnings of export driven companies from the IT, healthcare and metal companies.
Like September quarter, the dominant driver for December quarter earnings rebound is expected to be global recovery players such as IT, Pharma and stocks with global presence such as Tata Steel and Tata Motors, said Deutshce Bank in a preview report. The foreign brokerage has pegged in a y-o-y topline growth of 12.1% and 9.9% for the Sensex companies and its coverage universe of about 105 companies, respectively, excluding Sesa Sterlite Ltd, for the December quarter.
Morgan Stanley and BofA-ML expect the third quarter revenue growth of Sensex companies to be near 13% and 15%, respectively, compared with last year while Religare Capital Market is looking at a moderate rise of 10.1%.
Among the leading bluchip companies, recent favorites of investors, including Sun Pharmaceuticals Industries, Tata Consultancy Services (TCS), HCL Technologies and Tata Motors, are seen driving Sensex companies earnings. Most analysts peg over 80% jump in the third-quarter earnings of Tata Motors y-o-y on back of an improved realisation due to higher share of new Rolce Royce model in its luxury segment.
According to Deutsche, these numbers indicate the corporate Indias earnings trajectory may be at an inflection point. Macquarie notices that after Q2 results, the earnings revisions ratio has moved up, led by IT, metals, media and private banks.
Some analysts, however, feel the concentration in earnings performance towards export-oriented companies still calls for a caution on domestic growth cyclicals. The dispersion in earnings remain high and aggregate earnings may not reveal this, reasons Morgan Stanley in a recent note.
According to BofA-ML, a huge earnings growth concentration with five companies account for nearly 70% of profit growth.
Cement, oil & gas, industrials and utility sectors are likely to be a drag on aggregate earnings. Kotak Institutional Equities expects huge losses for PSU oil marketing companies, with estimated gross under recoveries of R38,500 crore and no compensation from the government as yet.
Banking sector is likely to be another laggard this earning season. While earnings of public sector banks are likely to be weighed down by forex mark-to-market losses and higher loan provisions, quarterly numbers of public sector banks may also reflect slowing revenue growth and higher credit costs.