Strong performance expected from cement, pharmaceutical, and banking and financial services sectors
A supportive global liquidity situation due to liquidity enhancement measures by the global central banks like the ECB, Fed, BoE, BoJ and BoC have fuelled a risk-on trade benefitting equities as an asset class. This was complemented by not-so-expensive valuations in India that resulted in a surge of FII inflows despite macroeconomic concerns resulting from falling growth, rising twin deficits and no movement on reforms. The governmentís final awakening from its state of somnolence after two years of policy paralysis has enthused both industry and investment fraternity. Markets expect that the decisive turn of sentiment from one of despondency to elation due to the reformist zeal rediscovered by the Prime Minister should now be supplemented by the government by committing itself to adoption of some of the key recommendations of the Kelkar Committee on medium-term fiscal consolidation. The key to continued FII flows and expected surge in FDI flows in various sectors as well as revving up the investment cycle by the domestic industry lies in confidence that the broken public finances will be repaired through a credible and transparent medium-term fiscal consolidation plan.
As for the September quarter, we expect revenue growth of Nifty companies to be at a 10-quarter low of just 13.4% year-on-year of YoY (the previous time it had fallen lower than this was in Q3FY10 at 9.9%). Revenues excluding oil & gas sector are expected to rise at 10.5%, again a 10-quarter low. Ebitda (earnings before interest, taxes, depreciation and amortisation) growth, on the other hand, is expected to bounce back strongly by 12.4% YoY (excluding oil & gas by 14.5% YoY). Similarly, PAT (profit after tax) growth will bounce back by 16.4% YoY (excluding oil & gas by 16.4% YoY). Moderation in input price inflation on a YoY basis and strengthening of the rupee leading to near-absence of foreign exchange losses has been responsible for this uptick in net profit growth.
We expect strong performance from cement, pharmaceutical, and banking & financial services sectors. Strong growth in realisations offsetting a tepid volume growth, observance of strict discipline by various players in the sector helping to maintain prices, healthy balance sheets and lower leverage levels due to strong cash flow generation will lead to a stellar performance by cement companies. Strong growth in the US, better operational performance and boost provided to net profits due