Market-wary analysts look at poor Q3, Q4 results

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Mumbai: Key indices on the Indian equity markets have remained positive since the onset of 2009 and most of the market experts are asking the question, “When do we see the next bottoming out?” And the one answer that comes across is during the second and third week of January 2009. This is the time when there would be clarity over corporate earnings and analysts and fund managers would start reallocating their ratings and funds.

However, at the moment, analysts do not have very high expectations from the market. They expect earnings to be poor in the third quarter of FY09 and more so in the last quarter. “We expect Sensex companies to deliver EBITDA growth of 1% and profit de-growth of 6%,” says a Motilal Oswal preview of the third quarter earnings.

“We estimate that the topline of Sensex constituents would grow by 3.8% on a year on year basis during the quarter, while net profit would decline by 4%,” estimate Vinod Nair and Bandish Mehta of Religare Hichens Harrison. A BNP Paribas report sees the operating profits and net profits decline by 300 basis points.

And the fact that the earnings will be negative has been factored in the market place. “The Sensex has corrected by 25% in the third quarter of FY09 and 52% year-to-date, suggesting that the negatives have largely been factored in,” say Nair and Mehta. “Lower earnings are in the market, the question is how low would they get,” says Anup Bagchi executive director with ICICI Securities.

Bagchi reckons that if the fall is not significant and in the early single digits then the market reaction will not be sporadic. They would wait for the last quartet for a rerating, in case there would be any.

Analysts at Angel Broking reckon that the fall in earnings was largely caused by the collapse in metal commodities by 40-60% during the quarter. “This has led to complete reversal in the fortunes of metal companies, and consequently our estimates. In the midst of the new developments, we expect substantial de-growth in the earnings of these companies” says the report.