Earnings season has started on a positive note with bell-weather Infosys announcing a 21.4% yoy growth in profits for the December quarter and a guidance for a handsome 25% revenue growth for the entire FY14. More good news is expected from some of the top-30 companies. Leading brokerages expect sales and earnings growth of Sensex companies to be over 10% yoy during Q3 while profits may jump by over 20%. Excluding energy, JP Morgan projects a 22% growth in earnings of Sensex companies while Kotak says the ex-energy, ex-banks earnings growth would be 26.8%. Even sequentially, the EBIT growth is slated to improve to 15% in Q3 from 13% in Q2, with real estate rising 4.1% qoq, cement up 3.3% and metals inching up 2.5%, as per an estimate of Goldman Sachs.
The optimism over Q3 earnings growth seems to defy logic for a country whose economic growth is at a decade’s low of about 4.6% during H1 of FY14. But the forecast aren’t a big surprise if we consider the surge in export earnings of IT, pharma, textile and auto firms and higher revenues from overseas arms. Bank of America-Merrill Lynch forecast Bharti earnings to grow 194% in Q3 while Tata Motors may post 106% growth aided by higher sales of its premium JLR brands, and TCS is likely to log a 47% growth taking advantage of the rupee depreciation. The picture is bleak for others with the country’s largest lender SBI forecast to record a 26% fall in earnings while capital goods major BHEL may see a 15% decline and Coal India may fall 10%.
Exclude the companies with high exports earnings and overseas revenues, JP Morgan says earnings of Sensex companies are likely to rise just 2% reflecting the stress in the domestic economy. The industry has failed to show any signs of growth during April-November, the services growth is moderating and the overall GDP is unlikely to grow faster than last year’s pace of 5%. Prime Minister Manmohan Singh as well as the BJP’s PM candidate Narendra Modi all but agree that the economy may need 6 months